Lenders generally require mortgage insurance on small or no down payment loans because statistics show that a borrower with less than 20 percent of personal investment in a home has a higher risk of default. In effect, the mortgage insurance company insures the risk of default for the lender. This allows the mortgage to be approved with less than 20 percent down payment as long as the coverage is provided to the lender.
Many companies provide such type of protection by charging a monthly fee.
Mortgage insurance also facilitates the mortgage marketplace. The recycling of these loans to these investors is crucial to the market liquidity and money flows. RID OF PMI Mortgage insurance is not for ever. If you develop 20 percent equity in your property than it can be canceled by the homebuyer. Guidelines vary among lenders and don't forget removing PMI is not the favorite task for the lender.