The Pros and Cons of Mortgage Insurance: What You Need to Know Before You Buy @7

If you’re in the process of buying a home, you may have heard about mortgage insurance. Mortgage insurance is a type of insurance that protects lenders in case a borrower defaults on their loan. This insurance is typically required when a borrower puts down less than 20% of the purchase price of the home. However, like any financial product, mortgage insurance has both pros and cons that should be carefully considered before making a decision.


  1. Lower down payment requirements: Mortgage insurance allows borrowers to put down less than 20% of the purchase price of the home. This can be a significant benefit for first-time homebuyers who may not have a large down payment saved up.
  2. Lower interest rates: When a borrower puts down less than 20%, lenders consider the loan to be riskier. Mortgage insurance helps to mitigate this risk, which can result in lower interest rates for the borrower.
  3. Protection for the lender: Mortgage insurance protects the lender in case the borrower defaults on the loan. This protection can make lenders more willing to lend to borrowers with less than 20% down, which can expand the pool of potential homebuyers.


  1. Additional cost: Mortgage insurance adds an additional cost to the monthly mortgage payment. Depending on the size of the down payment, this cost can be significant and can add up over time.
  2. Limited benefits for the borrower: While mortgage insurance protects the lender, it provides little to no benefit for the borrower. If a borrower defaults on the loan, the lender is protected, but the borrower may still lose their home.
  3. Difficulty cancelling: Mortgage insurance can be difficult to cancel. In some cases, borrowers may be required to pay mortgage insurance for the life of the loan, even if they reach the 20% equity threshold.

Before deciding whether or not to purchase mortgage insurance, it’s important to carefully consider the pros and cons. If you’re a first-time homebuyer with limited savings for a down payment, mortgage insurance may be a good option to help you get into the housing market. However, if you have a larger down payment and can afford to pay a higher monthly mortgage payment, you may want to consider avoiding mortgage insurance altogether.

If you do decide to purchase mortgage insurance, make sure you understand the terms of the policy and the requirements for cancellation. Some lenders may require you to refinance your loan in order to cancel mortgage insurance, which can be an additional cost and hassle.

In conclusion, mortgage insurance can be a valuable tool for borrowers who are unable to put down 20% on a home purchase. However, it’s important to carefully consider the pros and cons before making a decision. By understanding the benefits and drawbacks of mortgage insurance, you can make an informed decision that’s right for your financial situation.