## When Can You Drop Mortgage Insurance?
Mortgage insurance is a type of insurance that protects the lender in case the borrower defaults on their mortgage. It is typically required for loans with a loan-to-value (LTV) ratio of 80% or more. Once the LTV ratio reaches 78%, most lenders will allow you to drop mortgage insurance. However, there are some exceptions to this rule.
**When You Can Drop Mortgage Insurance Automatically**
Most lenders will automatically drop mortgage insurance once the LTV ratio reaches 78%. This is because the risk of default decreases as the LTV ratio decreases. However, there are some exceptions to this rule. For example, some lenders may require you to have a certain amount of equity in your home before they will drop mortgage insurance.
**When You Can Request to Drop Mortgage Insurance**
If your lender does not automatically drop mortgage insurance once the LTV ratio reaches 78%, you can request to have it removed. To do this, you will need to contact your lender and provide them with documentation showing that you have reached the required LTV ratio.
**What Happens if You Drop Mortgage Insurance**
Once you drop mortgage insurance, your monthly mortgage payments will decrease. This is because you will no longer be paying for the insurance premium. However, it is important to note that dropping mortgage insurance may also increase your interest rate.
**Pros and Cons of Dropping Mortgage Insurance**
There are both pros and cons to dropping mortgage insurance. Here are some of the benefits:
* **Lower monthly mortgage payments:** Dropping mortgage insurance can save you money on your monthly mortgage payments.
* **Increased equity in your home:** Once you drop mortgage insurance, you will have more equity in your home. This is because you will no longer be paying for the insurance premium.
* **Improved credit score:** Dropping mortgage insurance can improve your credit score. This is because it will show that you are a responsible borrower who is able to make your mortgage payments on time.
Here are some of the drawbacks:
* **Higher interest rate:** Dropping mortgage insurance may increase your interest rate. This is because the lender will be taking on more risk by lending you money without the protection of mortgage insurance.
* **Loss of protection for the lender:** If you default on your mortgage, the lender will not have the protection of mortgage insurance. This means that they may lose money if you are unable to repay your loan.
**Should You Drop Mortgage Insurance?**
Whether or not you should drop mortgage insurance is a personal decision. There are both pros and cons to consider. If you are unsure whether or not it is the right decision for you, you should talk to a financial advisor.
## Tips for Dropping Mortgage Insurance
If you are considering dropping mortgage insurance, here are a few tips:
* **Make sure you have reached the required LTV ratio.** Most lenders will require you to have a LTV ratio of 78% or less before they will drop mortgage insurance.
* **Check your loan documents.** Some loans may have a prepayment penalty if you drop mortgage insurance before the end of the loan term.
* **Contact your lender.** To drop mortgage insurance, you will need to contact your lender and provide them with documentation showing that you have reached the required LTV ratio.
* **Be prepared to pay a fee.** Some lenders may charge a fee to drop mortgage insurance.
## Conclusion
Dropping mortgage insurance can save you money on your monthly mortgage payments and increase your equity in your home. However, it is important to weigh the pros and cons before making a decision. If you are unsure whether or not it is the right decision for you, you should talk to a financial advisor.