Which statement accurately describes mortgage insurance?

Mortgage insurance serves an important role in protecting lenders from the financial impact of borrower defaults. When a borrower takes out a mortgage with a down payment that is less than 20% of the property’s value, it is more likely that they will default on the loan. Mortgage insurance mitigates this risk by compensating the lender for a portion of the losses if the borrower fails to make payments and the property goes into foreclosure.

This type of insurance can be applicable to various loan types, not just limited to FHA loans, and it is not universally mandatory for all mortgage loans, which is why it’s not accurate to say that it must be included in every situation. The presence of mortgage insurance can also affect the overall cost of a loan, but it does not inherently lower interest rates; instead, it allows borrowers who might otherwise have difficulty securing financing to obtain loans with smaller down payments.

In summary, the statement that correctly describes mortgage insurance is that it protects the lender against default, meaning it plays a crucial role in lending practices and risk management within the real estate market.