What is the primary purpose of mortgage default insurance?

The primary purpose of mortgage default insurance is to protect the lender in case the borrower defaults on their loan. This type of insurance is particularly relevant in situations where the borrower has a low down payment, which increases the lender's risk. By having mortgage default insurance, the lender is assured that they will recover some of the losses if the borrower is unable to make their payments and the mortgage goes into default.

This insurance serves as a safety net for lenders, allowing them to offer mortgages to borrowers who might not have large deposits, thus facilitating home ownership for more people. While it may lead to the possibility of securing a mortgage with less upfront investment, its main objective is to mitigate the financial risk faced by the lender in the event of borrower default, ensuring stability in the lending sector.