Purpose

• The purpose of private mortgage insurance is to make payments on a mortgage if the borrower is unable to make payments himself. What this means is that if you take out a mortgage, and you find you cannot make payments on that mortgage after losing your job, you can use private mortgage insurance to pay the mortgage payments for you.
  
  

Significance

• The payments under a mortgage insurance contract will continue for a length of time specified by the insurance contract. These benefits must be claimed by you. The mortgage insurance company also needs to approve the claim and then send payments, plus back payments for months where your mortgage has not been paid, to the bank. You should notify the bank that you have filed a claim so that the bank does not immediately start the collections process.
  
  

Benefit

• The benefit of mortgage insurance is that it keeps you in your home and prevents foreclosure if you cannot pay your mortgage. This insurance is technically set up to protect the lender in the event you default on your loan. But, since the payments are being made for you, the bank won't foreclose on you. So, you get to keep your property.
  
  

Disadvantage

• If you fail to file a claim with the mortgage insurer promptly, you might lose your home. The mortgage insurer sends the payment to your bank and not to you. Because of this, you may not know exactly when your payment is being made. But, if the mortgage insurer fails to make the payment on time or doesn't make it all, then the bank will foreclose on the home. This, in turn, seriously damages your credit. Even with late payments, your credit could be damaged.
  
  

Consideration

• If you are taking out a second mortgage, consider taking out a loan that is just under the threshold required by your bank for mortgage insurance. You pay the premiums for the mortgage insurance, so this additional amount might make it harder for you to make your second mortgage payment.