A mortgage insurance policy is an insurance policy that protects the lending institution in the event the borrower defaults on their mortgage. This type of policy does not provide coverage for the borrower and should not be mistaken for mortgage protection which is a benefit arising from income protection insurance.
The mortgage insurance policy is in favor of the lending institution and is taken out by the lending institution. The premium is usually paid by the borrower as a cost of providing the loan.
The mortgage insurance premium will vary depending on the type of home loan, how much money is being borrowed and the size of the deposit. Mortgage insurance is paid either as a single upfront payment or some lenders may allow for the premium to be financed through the mortgage loan.
Depending on the lender, the type of loan and the mortgage insurance product, it is possible to add the premium to the borrower's total loan amount. This avoids having an upfront payment and spreads the cost of the insurance over the entire loan. A borrower should check with their lender to see what options are available to them that suits their needs.