Mortgage insurance, also known as private (PMI) or lenders mortgage insurance (LMI), is an insurance policy protecting lenders from the potential default of borrowers. The policy is purchased by the lender, and the premiums are passed along to borrowers as a fee tacked onto the monthly mortgage payment. Mortgage insurance is typically required for mortgages for which the down payment is less than 20% of the purchased property's value.

To qualify for mortgage insurance, a mortgage may have to meet conditions set by the Federal National Mortgage Association (Fannie Mae). These conditions cover borrower qualifications, the type of property being borrowed against, and the size of mortgage. If the conditions are met, the insured mortgage becomes eligible for resale in the very large and liquid market for mortgage-backed securities. This allows lenders to make, or originate, more loans than they might otherwise be able to handle because older mortgages can be sold.

The cost of mortgage insurance can also be incorporated directly into the mortgage in a process called capitalization. When capitalized this way, the premium becomes an additional tax deduction in jurisdictions where mortgage payments are tax deductible.