Insurance is a necessary part of modern day life. We have insurance for our general health, insurance to protect our assets like a car, a motorcycle or boat, and insurance to protect our homes. All insurance is designed to guard against loss. Private mortgage insurance is no different.

The main difference with the other insurances mentioned above and private mortgage insurance is the designated beneficiary of the protection. With a car or motorcycle, the owner of the item pays the insurance in the event of damage or loss in hopes of recovering their investment. However, with private mortgage insurance, the home buyer pays the insurance premiums but the lender is the one that receives the protection.

Mortgage insurance allows banks, credit unions, and mortgage lenders to offer more loans to buyers by getting a portion of the home’s value insured against loss. Without private mortgage insurance, the majority of buyers would not be able to purchase a home until they had saved up a down payment equal to 20% of the home’s purchase price.

Understanding how mortgage insurance works and how it impacts the monthly payment can help you make a more informed choice when you are ready to purchase a home.