Mortgage insurance

Mortgage Life Insurance refers to an insurance policy that guarantees repayment of a mortgage loan in the event of death or, possibly, disability of the mortgagor. Private Mortgage Insurance (PMI) refers to protection for the lender in the event of default, usually covering a portion of the amount borrowed. There are Government loan products that also include a Mortgage Insurance Premium (MIP), essentially the government equivalent of PMI.
For example, Mr. Smith obtains a mortgage loan that exceeds 80% of his property's value and/or sale price. Because of his limited equity, the lender requires that Mr. Smith pay for mortgage insurance that protects their institution against his default. To obtain a mortgage loan insured by the Federal Housing Administration, Mr. Smith must pay a mortgage insurance premium (MIP) equal to 1.5 percent of the loan amount at closing. This premium is normally financed by the lender and paid to FHA on the borrower's behalf. Depending on the loan-to-value ratio, there may be a monthly premium as well.