What is the type of mortgage insurance that protects lenders from borrower default in conventional loans?

What is the type of mortgage insurance that protects lenders from borrower default in conventional loans?

• A. Mortgage Insurance Premium
• B. Private Mortgage Insurance
• C. Federal Housing Administration Insurance
• D. Credit Life Insurance

Answer: (B)

Private Mortgage Insurance (PMI) is designed specifically for conventional loans when a borrower is unable to provide a 20% down payment. PMI protects lenders by covering a portion of the losses they may incur if the borrower defaults on their mortgage payments. This insurance is typically required for loans with a loan-to-value ratio above 80%. Unlike Mortgage Insurance Premium (MIP), which is associated with FHA loans, PMI is not a government-backed insurance but rather is provided by private insurance companies. Additionally, PMI does not provide any coverage for the borrower, such as in the case of Credit Life Insurance, which pays off the mortgage in the event of the borrower's death. Overall, PMI plays a crucial role in enabling borrowers to obtain financing without a substantial down payment while minimizing the lender's risk in case of default.

Private Mortgage Insurance (PMI) is designed specifically for conventional loans when a borrower is unable to provide a 20% down payment. PMI protects lenders by covering a portion of the losses they may incur if the borrower defaults on their mortgage payments. This insurance is typically required for loans with a loan-to-value ratio above 80%.

Unlike Mortgage Insurance Premium (MIP), which is associated with FHA loans, PMI is not a government-backed insurance but rather is provided by private insurance companies. Additionally, PMI does not provide any coverage for the borrower, such as in the case of Credit Life Insurance, which pays off the mortgage in the event of the borrower's death.

Overall, PMI plays a crucial role in enabling borrowers to obtain financing without a substantial down payment while minimizing the lender's risk in case of default.