text: I'm assuming by mortgage insurance you are refering to PMI.  PMI protects the holder of the mortgage (the bank or the investor) in the event the borrower defaults on the home and the home is sold at aution (foreclosure).  For example, you have a loan for $100,000 and your home is sold through a foreclosure sale.  It sells for $50,000.  The PMI covers some of the loss of sale to the bank.  You as the borrower have to pay for this insurance to protect the bank.