Some individuals looking to purchase a house have little cash on hand to use for a down payment. These individuals must look for other means to convince a lender to finance them for a mortgage. Often, in these situations, you will have to pay mortgage insurance. With mortgage insurance, the lender is protected in case you default on the loan (cannot pay it). Unlike most types of insurance, the borrower pays the premium, even though it is the lender that receives protection. The advantages of paying mortgage insurance is that borrowers with little cash for a down payment can afford to purchase a larger or superior residence.
Though some people cannot afford to purchase a house without mortgage insurance, others do so in order to use the down payment money in other ways. If you are considering whether or not mortgage insurance is right for you, consider the situation as an investment: you can invest in the larger down payment in order to lock in a lower interest rate, or make a smaller down payment and thus pay mortgage insurance, which may end up costing more in the long run. Consider all of your options and try to predict your financial situation in the future when deciding.