Here is why you absolutely need mortgage insurance

Mortgage insurance
Mortgage insurance is important for both the borrower and the lender. PHOTO/FILE
Mortgage insurance, often referred to as MI, is an insurance policy that compensates the lender for losses incurred due to a mortgage default.

Payable to a lender, this insurance helps reduce or eliminate loss in the case of a default by the borrower or when the lender is unable to recover the funds after foreclosure and sale of the mortgaged home.

The insurance is important for both the borrower and the lender. It gives the lender the comfort to offer bigger loans to individuals while keeping the down payment for the purchase of a house low.

A low down payment means that individuals will take shorter time to save money for their homes. This is particularly helpful to first time home buyers who cannot raise a 20 per cent down payment.

Although some home buyers view it as a burden, a mortgage insurance plays a very important role in home ownership. It ensures that your mortgage loan is paid off in full in the unfortunate event of your death, long-term illness or permanent disability.

Mortgage insurance protects the borrower who suffers a severe illness that is covered under the policy such as heart disease, HIV, cancer, kidney failure and stroke.

It gives you peace of mind knowing that your house will not be repossessed should you lose your job or suffer injuries that confine you to a hospital bed for several months.