What is the primary purpose of mortgage insurance?

The primary purpose of mortgage insurance is to protect the lender against the default of the borrower. This form of insurance is typically required when the borrower makes a down payment of less than 20% of the home’s purchase price. In the event that the borrower defaults on the loan, the mortgage insurance ensures that the lender will be compensated for the loss. This risk mitigation allows lenders to offer loans to borrowers who might otherwise be unable to secure financing due to a lower down payment, thereby increasing access to home ownership for many individuals.

The other options don't fit the primary purpose of mortgage insurance. Increasing the property value, lowering the interest rate of the loan, or serving purely as a tax deduction are not inherent functions of mortgage insurance. Instead, these options address different aspects of mortgage financing and ownership.