Function

• Lender's mortgage insurance protects the lender in the event that the borrowers fail to repay the loan. The borrower is required to pay the premium on the policy. Lender's mortgage insurance offers no protection to the homeowners.
  
  

Features

• If a borrower does not have a 20 percent down payment, the lender typically requires him to pay an insurance premium. This can be paid as part of the monthly mortgage payment.
  
  

Benefits

• Opting to pay for the insurance allows borrowers without cash for a down payment to purchase a home. It allows people to become homeowners sooner or afford higher-priced homes.
  
  

Considerations

• The lender will only pay the insurance premiums if the borrower agrees to a higher interest rate. This type of insurance is called "lender-paid private mortgage insurance."
  
  

Other Terms

• Lender's mortgage insurance is also referred to as private mortgage insurance, or PMI.