Mortgage Insurance

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An insurance policy designed to protect the Mortgagee (lender) from any default by Mortgagor (borrower). Used commonly in loans with a Loan-to-value over 80%, and employed in the event of foreclosure and repossession.

This policy is typically paid for by the borrowers either as a component to final nominal (note) rate; in one lump sum up front; or as a separate and itemized component of monthly mortgage payment. In the latter case, mortgage insurance can be dropped when Mortgagor informs Mortgagee, or its subsequent assigns, that the property has appreciated, the loan has been paid down, or any combination of both to relegate the Loan-to-value under 80%.

In the event of repossession, banks, investors, etc. must resort to selling the property to recoup their original investment (the money lent), and are able to dispose of hard assets (such as real estate) more quickly by reductions in price. Therefore, the Mortgage Insurance acts as a hedge should the repossessing authority recover less than full and fair market value for any hard asset.