What Is Mortgage Insurance and Will I Need It? -

A question that comes up all the time: What exactly is mortgage insurance and will I need it?"

Mortgage insurance is required by lenders when the loan is for more than 80% of the value of the home. The smaller the equity, the greater the cost of the insurance.Important point: although it is paid for by the borrower, it benefits the lender. The reason is to insure against a loss in the case of a foreclosure, if the proceeds from the sale of the home are insufficient for the lender to recoup the amount owed. The insurance covers the difference.

There are two ways to pay for mortgage insurance: lender-paid and borrower-paid.

There are advantages and disadvantages to both:

- Lender-paid insurance is fully tax deductible and there is less cash to close.

- Borrower-paid insurance has a slightly lower premium and it can be removed when there's 20% equity (you don't need to refinance the loan - like you would have to do with the lender-paid premium).

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