Mortgage insurance protects the lender against taking a financial loss in the event the mortgagor stops making payments. It is required on mortgage programs that require little down payment and the lenders exposure is greater than 80% of the purchase price or appraised value, whichever is less. Mortgage insurance can sometimes be avoided by utilizing a 2nd mortgage taken on the property. Or, there is Lender Paid Mortgage Insurance (LPMI). With this option, the lender pays the mortgage insurance, which is offset by a higher interest rate charged to the borrower.