Mortgage insurance, often called "private
mortgage insurance" or PMI for short, insures the lender against
losses which could be incurred should the borrower not make payments and
the loan go into default. It is this kind of insurance which allows
lenders to make loans where the borrower's down payment is less than
20%. Conceptually, it is patterned after the federal government’s FHA
home loan programs in which the federal government guarantees lenders
against the loss of default for loans on properties on which the
borrower puts down as little as 3% of the purchase price.
The term "mortgage insurance" is also
used for those types of life insurance policies which are used to pay
off the balance of the mortgage in the event of the borrower’s death.
Yes, it is confusing.
Homeowner’s insurance, also referred to as
hazard insurance, is your traditional insurance used to protect the
borrower/homeowner against property loss from fire, weather, etc.