Definition of mortgage insurance
: insurance that protects a mortgagee against loss because of default in payments by a mortgagor
Love words? You must — there are over 200,000 words in our free online dictionary, but you are looking for one that’s only in the Merriam-Webster Unabridged Dictionary.
Start your free trial today and get unlimited access to America's largest dictionary, with:
- More than 250,000 words that aren't in our free dictionary
- Expanded definitions, etymologies, and usage notes
- Advanced search features
- Ad free!
Financial Definition of MORTGAGE INSURANCE
What It Is
How It Works
Mortgage lenders assume a high degree of risk in connection with home loans. For this reason, lenders frequently purchase mortgage insurance plans. These are policies that compensate mortgage lenders for losses caused by payment delinquency as well as the death or debilitation of the borrower. For example, if the borrower for a $100,000 mortgage dies leaving a $40,000 balance on the mortgage, the lender's mortgage insurance covers the unpaid $40,000.
Lender's may also require borrower's to buy mortgage insurance (called private mortgage insurance, or PMI) when the borrower's down payment is less than 20% of the home's purchase price. Once equity in the house reaches 20%, the lender will drop the requirement.
Why It Matters
Numerous insurance companies suffered and even folded because of the high number of claims on mortgage insurance policies during the subprime mortgage crisis of the late 2000s. The magnitude of the problem warranted the U.S. Treasury to intervene and lend emergency funds in order to curb the effects on the financial system.
Seen and Heard
What made you want to look up mortgage insurance? Please tell us where you read or heard it (including the quote, if possible).