If you currently have mortgage insurance, or had it in the past, you may be eligible for a full or partial refund. Mortgage insurance is an additional policy that protects the lender in case you default on your loan. It is usually required when you make a down payment of less than 20% of the home purchase price.
Over the life of your mortgage, you are required to pay premiums towards this policy every month. However, you may be able to get rid of your mortgage insurance requirement earlier if you reach 20% equity sooner. In such cases, any premiums paid past that point makes you eligible for a refund.
Here is a detailed guide on how to check if you qualify for reimbursement of your mortgage insurance premiums:
How Mortgage Insurance Works
First, let’s understand what mortgage insurance is and how the refund eligibility is determined.
Mortgage insurance protects the lender if a borrower stops making payments on their home loan. It is an additional policy you pay for until you build up 20% equity in the home through your down payment or by paying down the loan.
The premium costs vary but are typically 0.5% – 1% of the total loan amount per year. On a $200,000 loan at 0.5%, you would pay $83 per month towards mortgage insurance.
Once you cross the 20% threshold through a combination of down payment and principal paydown, the lender’s risk is reduced. At this point, you can request to cancel your mortgage insurance.
Any premiums you pay beyond this date makes you eligible to file a claim and receive reimbursement from your mortgage insurer. The refund process and requirements depend on a few key criteria which we will discuss next.
When Are Refunds Available
Mortgage insurance refunds fall into three main categories:
- Automated Refunds
- Proactive Cancellation Refunds
- Retroactive Refunds
Let’s look at each refund type more closely.
Automated Refunds
The easiest refunds happen automatically once your loan reaches 78% loan-to-value ratio through your monthly payments. At this point, mortgage insurance will terminate automatically per federal law.
Any premiums you paid between hitting the 78% threshold and actual cancellation makes you eligible for an automated refund. The amount will be calculated and sent to you directly by your mortgage servicer.
You do not need to apply or submit paperwork for automated mortgage insurance refunds. But not all policies qualify, as discussed next.
Proactive Cancellation Refunds
The second type of refunds happens when you proactively request cancellation of your mortgage insurance. This can occur when you reach 20% equity through a combination of down payment, monthly payments, and home appreciation.
To qualify for proactive cancellation, you need a type of mortgage insurance called “borrower-paid MI”. This means you directly pay the premiums as part of your monthly payment. VA and FHA loans do not qualify.
If you have borrower-paid MI, you can request cancellation by contacting your lender as soon as you hit 20% equity. Work with them to verify your home value and loan balance.
Any premiums paid after your verified cancellation date will qualify you for a refund. Make sure to request reimbursement from your mortgage insurer.
Retroactive Refunds
The third category is retroactive mortgage insurance refunds. These require you to prove that your mortgage servicer failed to terminate your policy when you hit either the 20% or 78% equity milestone.
This type of refund allows you to collect premiums as far back as 2 years from your cancellation request date. Your servicer may be liable for errors going even further back in certain cases.
To qualify for retroactive reimbursement, work with your loan servicer to conduct an audit of when you reached 20% equity. You can use annual home appraisals or automated home value estimates.
Document premium payments from cancellation eligible date to termination and submit claims for reimbursement from your mortgage insurer. But be prepared to put in significant effort to prove faulty practices.
How To Check Refund Eligibility
Now that you understand the main types of mortgage insurance refunds, let’s go through key steps to check your eligibility:
- Review Mortgage Details
Pull out your original home loan documents to understand exact policy terms:
- Type of mortgage insurance
- Premium rate and payment schedule
- Automated termination thresholds
This data is critical to assess eligibility. Contact your loan servicer if any details are unclear.
- Calculate Current Home Equity
Determine your home’s current loan-to-value ratio through two key data points:
- Outstanding Principal Balance: Check with your lender for exact figure
- Estimated Home Value: Use online tools like Zillow. Or request a professional appraisal.
Then apply this formula:
Home Equity % = (Home Value – Loan Balance) / Home Value
If your home equity is above 20%, you may qualify for proactive cancellation.
- Review Payment History
Comb through your payment records since origination and highlight mortgage insurance premiums paid each year. Online bank statements or annual lender summaries make this easier.
This helps determine the maximum refund eligibility window. Count back 2 years from the date you hit 20% equity.
- Compare With thresholds
Finally, compare your home equity percentage and evidence of overpayment with policy thresholds:
- 20% Equity Threshold
Any premiums paid past the 20% mark qualify for proactive refund
- 78% Equity Threshold
Premiums paid beyond 78% qualify for automated refund
If you exceeded either threshold but kept paying, you are owed reimbursement.
Submitting Refund Requests
Once you confirm your eligibility, here are the next steps to claim mortgage insurance refunds:
- Contact mortgage insurer directly for premium reimbursement requests. Most major companies have pre-defined processes.
- Work with loan servicer to terminate policy if still active. Provide evidence of 20% or 78% equity achievement.
- Submit dated premium payment history highlighting overpayments. 2 years of records are usually required.
- Follow up regularly on claim status and appeal denials with documented proof. Persistence pays off.
The refund process usually takes 2-3 months but can vary widely. Complex requests with incomplete data take longer. Most claims do ultimately get paid out.
Maximizing Refund Potential
Here are some final tips to maximize potential value of your mortgage insurance refund:
- Review eligibility every year when re-financing or upon significant home value appreciation.
- If near 20% threshold, consider one-time lump sum payment to cross over sooner.
- Make bi-weekly or extra principal payments over the life of your loan to build equity faster
- Ensure mortgage servicer has updated contact info & home value estimates for timely policy termination.
- Keep immaculate records of all premium payments & related loan communications.
While checking eligibility takes effort, mortgage insurance costs can total tens of thousands over a home loan term. Take advantage of provisions to cancel your policy early and seek rightful refunds. Careful analysis and diligent documentation is key to driving maximum reimbursement value from your mortgage insurer.