What is the purpose of mortgage default insurance?

The purpose of mortgage default insurance is to protect the lender from financial loss that may occur if a borrower fails to make their mortgage payments and ultimately defaults on the loan. This type of insurance provides coverage to the lender, allowing them to recover a significant portion of the outstanding loan amount in the event of default.

The need for mortgage default insurance often arises when a borrower makes a down payment that is less than 20% of the home's purchase price, which increases the lender's risk. By obtaining this insurance, lenders are more willing to finance loans for borrowers who have lower equity in their property, extending credit to a broader group of homebuyers.

In contrast, while other options might suggest benefits or roles in the mortgage process, such as assisting in qualifying for a loan or lowering interest rates, these do not accurately reflect the primary purpose of mortgage default insurance. The insurance is fundamentally designed to protect the lender's financial interests, making option C the most accurate answer.