Mortgage insurance is credit insurance that makes good to a lender or investor losses on account of default on the part of the borrower in making mortgage payments. The insurance can either be private or public depending on who is insuring the default. Mortgage insurance helps borrowers who do not have the cash to make a large down payment but otherwise credit worthy to qualify for loans.

 Many lenders will insist on mortgage insurance where the down payment by the borrower is low (typically 20 percent or less of the value of the house). To lend $180,000 for a house worth $200,000, in other words, equity of 10 percent, the lender may require insurance up to say $50,000 to cover himself. If there is a default and the house is sold at a loss, the insurer will pay the first $50,000 worth of losses.

Mortgage insurers will normally provide coverage of between 20 percent and 50 percent though higher coverage is possible and will charge a premium for their coverage to be paid either by the borrower or the lender.  Public mortgage insurance is available from the Federal Housing Administration at a premium of 1.75 percent of the value of the mortgage. The lender will normally include the premium in the loan amount and pay the FHA on behalf of the borrower. Depending on the circumstances, a monthly premium may also be payable. Another federal agency, The United States Veterans Administration, also provides insurance.

Mortgage insurance is available from private insurers and could cost anything from 1.5 percent to six percent of the loan value every year, depending on the circumstances such as loan to value and the credit score of the borrower. The premium will be payable as determined by the insurer and could be lump sum or periodic or a combination of both.