Hi, Wking !
Some simple definitions are at Investor's Words at:
http://www.investorwords.com/cgi-bin/getword.cgi?3133
"mortgage insurance
Insurance protecting a lender against loss from a mortgagor's default.
Issued by the FHA or a private mortgage insurer. "
and 4554.com at:
http://www.4554.com/Glossary/PRIVATE_MORTGAGE_INSURANCE_(PMI).html
"PRIVATE MORTGAGE INSURANCE (PMI)
Insurance provided by private carrier that protects a lender against a
loss in the event of a foreclosure and deficiency. "
A good full article by Michael W. Licamele III is at:
http://mortgagealmanac.com/articles/95-factsaboutmtgeins.html
Among other things, he says:
"Mortgage insurance (also known as private mortgage insurance, PMI or
MI) protects lenders against a loss if a borrower defaults. In the
past, mortgage lenders were not permitted to make home loans without
the borrower providing at least a 20% down payment. The risk was
perceived as too great in case the borrower defaulted. As demonstrated
in the 1980's, even 20% equity in a property can disappear quickly
during market downturns.
With the introduction of mortgage insurance, mortgage lenders were
permitted by federal agencies to make loans as high as 97% of the
value of a property. The mortgage insurance company protects the
lender against some but not all of the loss in the event of a default.
It is important to note what mortgage insurance is not. Many people
mistake private mortgage insurance for mortgage credit life insurance.
Mortgage credit life insurance is a term life insurance policy that
will pay off a borrower's mortgage payment in the event of the
borrower's death. Private mortgage insurance has nothing to do with
this type of coverage. Many home buyers consider mortgage insurance a
hindrance to home ownership. In fact, the reverse is true. Without
mortgage insurance, most lenders would simply require higher down
payments of 20% or more. Since saving for a down payment represents
one of the largest obstacles to buying a home, mortgage insurance
plays an important role in the home buying process."
The whole article is worth reading.
GE's insurance division explains it at:
http://www.gehomenow.com/Homebuyer/whygemi.asp
"Maybe you've never heard of mortgage insurance, but it can make a big
difference in how quickly your mortgage loan is approved and how much
money you spend on a down payment.
Mortgage insurance helps protect lenders and mortgage investors from
severe financial losses in case a loan is not repaid for any reason.
This insurance benefits lenders and investors, but it helps
homebuyers, too. Because lenders are protected by mortgage insurance,
they are willing to offer loans with a very low down payment – as
little as three to five percent of the loan amount or, in some cases,
with no money down.
Without mortgage insurance, lenders usually require a down payment of
at least 20%. Even if you have enough money for a large down payment,
you may prefer to use it for other purposes, such as a child's
education or a more expensive house. If you don't have a 20% down
payment, it can take a long time to save it. And while you're saving,
the price of your dream home is likely to rise – perhaps faster than
you can save.
That's why GE Mortgage Insurance is for people who want a home now.
When lenders are supported by GE, they have extra security that gets
passed along to you."
There is a FAQS page.
Note that in Australia, where a 10% deposit is the norm, mortgage
insurance does not act to reduce the deposit , and is often a
requirement of the lender for the life of the loan.
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