Mortgage insurance – not to be confused with mortgage life insurance – often is required by the lender to protect it against a loan default by the borrower who makes a low down payment (less than 20% of the sale price). If the borrower defaults, the mortgage insurer pays the lender its money and then seeks to recover from the borrower or forecloses on the property. The premium can be paid monthly or in one large payment. (As a corollary, make sure that your lender will cancel the insurance and/or refund unearned premiums if your home equity goes up or you sell the property.) Mortgage life insurance pays off the balance of your mortgage when you die.
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