What is the primary purpose of mortgage guaranty insurance?

The primary purpose of mortgage guaranty insurance is to protect the lender in the event that the borrower fails to meet required mortgage payments. By providing this insurance, lenders can mitigate their risk associated with lending money for home purchases, especially in cases where borrowers may have a smaller down payment or lower credit scores. This insurance amount compensates the lender for losses if the borrower defaults on the mortgage.

This mechanism benefits not only lenders but also borrowers, as it can allow them to obtain a mortgage with a lower down payment, promoting homeownership opportunities. The lender views the presence of this insurance as a safeguard that makes financing more feasible even in higher-risk lending scenarios.

Other options discuss aspects that are unrelated to mortgage guaranty insurance, such as vehicle theft coverage or home repair coverage, which do not pertain to the context of mortgage protection. The option suggesting the purchase of additional properties does not capture the core function of mortgage guaranty insurance, which is primarily concerned with the lender's risk management rather than expanding a borrower's property portfolio.