Q. I have a home loan of $350,000 for a house which was settled around two years ago now. I am now thinking of refinancing due to a change in my circumstances. I want to know whether the Lender Mortgage Insurance (LMI) provider would consider a refund. Can I get an LMI refund if I pay off the loan within the next year which will make the loan three years old? Should I get a part-refund or am I entitled to the full-refund?
A. Refunds on LMI are usually handled based on the individual circumstances of your lender and your loan. Wayne Ormond, Managing director for Refund Home Loans says, "Mortgage insurers should be morally obligated to give you a refund up to two years from when you took out the loan, whether you are refinancing or whether your equity position changes."
"Unfortunately in your case if it has been over two years, you will not get your LMI refund. Usually the LMI refund is 40% of the premium after one year or less, and after that the refund rates tend to drop down to around 20% or 30%," says Ormond.
If you move to another lender, whether or not you are required to get an LMI depends on your equity position. "If you have a small deposit you will have to pay more than if you have a bigger deposit. If you have more than 20% deposit or the purchase price you will not pay any mortgage insurance.
As you've been paying the loan now for over two years, the amount you need to borrow may represent less than 80% of the loan and in such case, LMI is generally payable by the lender and not you, the borrower."
Borrowers be weary here though, if you do not ask for you refund, and you are entitled to it, you will not always get reminded of it.
Related: Home Loan Calculator