Whose risk does mortgage insurance always cover?

Mortgage insurance is specifically designed to protect the lender in the event that a borrower defaults on their mortgage. This type of insurance is typically required for loans that have a higher loan-to-value (LTV) ratio, meaning the borrower has made a smaller down payment. Since a smaller down payment increases the risk to the lender, mortgage insurance mitigates that risk by providing a financial safety net.

In scenarios where the borrower fails to make payments, the mortgage insurance compensates the lender for a portion of the financial loss incurred. This coverage encourages lenders to provide loans to borrowers who may be perceived as higher risk due to lower equity in the property. Therefore, mortgage insurance is fundamentally structured to safeguard the lender's investment, confirming that the correct answer is the lender.

The other groups mentioned, such as the borrower, the insurance company, and real estate agents, are not the intended beneficiaries of mortgage insurance. The borrower may indirectly benefit from being able to secure a loan with a lower down payment, but the primary risk being covered is that of the lender. The role of the insurance company is to provide the coverage rather than be covered, and real estate agents are not involved in the coverage aspect of the mortgage insurance.