Private mortgage insurance allows the mortgage insurer to share the risk of foreclosure with the lender for a premium, which is paid by the borrower. If a borrower stops making mortgage payments, the lender uses private mortgage insurance to help cover the legal and other expenses involved.


What does mortgage insurance do for me?

Private mortgage insurance has a wide range of benefits for many different borrowers.

1. First time buyers can use private mortgage insurance to overcome the largest obstacle to home ownership: coming up with a traditional 20 percent down payment. With private mortgage insurance, first time buyers can buy a house and start building equity years sooner. It also eliminates the risk that the home will appreciate out of reach while the buyer is trying to save for a traditional 20 percent down payment.


2. Trade up buyers can use mortgage insurance to consider a wider range of homes. If you have $15,000 in savings or equity in your current home, you can make a 20 percent down payment on a $75,000 house. With private mortgage insurance, you can use that same cash to buy a $150,000 house with 10 percent down or a $300,000 home with 5 percent down (assuming you qualify).


3. Both first time and move up buyers can put less money down and use their remaining cash for additional investments, home improvements, eliminating debts or college education expenses.


4. Buyers who itemize their taxes gain increased savings from private mortgage insurance. The larger loan amount that results from a low down payment boosts the mortgage interest deduction.