What differentiates 'mortgage insurance' from 'property insurance'?

Mortgage insurance is designed specifically to protect the lender in case a borrower defaults on their mortgage, ensuring that the lender can recover some of their losses. This type of insurance typically comes into play when a buyer makes a small down payment (often less than 20%). By contrast, property insurance, such as homeowners' insurance, provides coverage for the homeowner's property against risks like fire, theft, and liability claims. It ensures that the homeowner can repair or replace their home and personal belongings as well as cover liabilities in case of accidents that occur on their property.

This distinction is critical because it highlights the roles of these insurances in the mortgage process: while mortgage insurance is required to mitigate risk for lenders, property insurance is essential for safeguarding the homeowner's financial investment. Understanding this difference helps clarify the motivations behind each type of insurance and their respective purposes in real estate transactions.