Mortgage Insurance 101: Everything You Need to Know

For many homebuyers, mortgage insurance is a necessary evil. It's an added expense that serves little purpose other than to line the pockets of the insurance company, but it's required if you're putting less than 20% down on a home. In this article, we'll explain everything you need to know about mortgage insurance so that you can make an informed decision when you're shopping for a home loan.

What is Mortgage Insurance?
Mortgage insurance is an insurance policy that protects the lender in the event that you default on your loan. If you stop making payments on your mortgage, the lender will still be protected (up to a certain point). This type of insurance is typically required if you're putting less than 20% down on a home, as it's seen as extra protection for the lender. 

What Does Mortgage Insurance Cover?
Mortgage insurance covers the lender for any losses that they may incur if you default on your loan. This includes things like the balance of your loan, as well as any legal fees associated with foreclosing on your home. 

How Much Does Mortgage Insurance Cost?
Mortgage insurance typically costs between 0.5% and 1% of your loan amount annually. So, if you have a $100,000 loan, you can expect to pay between $500 and $1,000 per year in mortgage insurance premiums. 
 
When Do I Have to Pay Mortgage Insurance?  Most mortgage insurance policies require that you pay premiums monthly, along with your regular mortgage payment. However, there are some policies that allow you to pay in one lump sum at closing. 

Mortgage insurance is an important part of getting a home loan, especially if you're putting less than 20% down on the property. While it's not ideal to have to pay for this type of insurance, it does protect the lender in the event that you default on your loan. Be sure to shop around for the best mortgage insurance rates so that you can save as much money as possible.