Everything you need to know about a Lenders Mortgage Insurance refund

Generally, in the process of applying for a home loan, Lenders Mortgage Insurance is a non-refundable insurance paid to the lender. However, there are lenders that promise the return of the LMI amount, under exceptional circumstances. To become eligible for an LMI refund, you may need to fulfil the below-mentioned requirements.

•  The loan must be repaid in less than 24 months from the date of drawdown of the loan.
•  There should not be any arrears, defaults or late payments while repaying the loan.
•  The LMI refund amount must be more than $500.

These are the general requirements for becoming eligible for an LMI refund, but your lender might have a different arrangement with their LMI provider. Some LMI providers may disqualify you from getting a refund if the house is being used as collateral for some other loan. Therefore, you should discuss the LMI policy with your lender before proceeding with the home loan.

The refund amount varies from lender to lender. The period of repayment of the loan to become eligible for a LMI refund also depends on the agreement that your lender has with its provider. Most providers refund 40 to 50 per cent of the LMI fee if you repay the loan within 12 months. And, if you are repaying your home loan within 24 months, you are entitled to get a refund of up to 25 per cent.

The risk of non-payment of the monthly mortgage instalments is highest during an initial couple of years. Hence, some of the LMI fees are already spent to cover the risk. Therefore, you cannot apply for a full LMI refund.

You may need to contact your lender and request a refund. They will duly inform you about the procedure and the documents that you require to initiate a LMI refund. Additionally, they will ask you to send them a written request. In some cases, the LMI refund is automatically initiated as part of the settlement process of the home loan if you fulfil all the necessary criteria.

The refund request is approved by the LMI provider and not by the lenders. Once approved, you will get your refund within a few months. The refund process might seem slow, as these requests are processed in batches. You should stay in close contact with your lender to keep track of the progress of your LMI refund request.