Recently, I was asked the question: Can I get PMI payments refunded? What was being asked pertains to “private mortgage insurance”, which is required if a down payment is less than 20% of the value of the home. In that event, the lender requires the borrower purchase a policy that insurers the lender against loss in the event the borrower defaults.
The PMI premium is paid to the lender out of the loan proceeds in a lump sum at closing, but the borrower can be finance that amount and pay it over time, together with the regular monthly amount due to the lender. FHA loans do not have PMI, but something similar called MIP: mortgage insurance premium. Since the MIP and PMI rules can be different, you first have to determine what type of loan you have (next blog will tell you how).
First I had to find out if the client thought he was entitled to get past PMI premium payments refunded, or whether he trying to get it removed from future payments. Of course when asked, the client said he wanted to know the answer to both – although he admitted that in the beginning it was the refund, he was interested in.
That answer was simple. Unless otherwise agreed (in writing) at the time the loan was originated, there are no refunds of PMI. Mortgage insurance is paid so a borrower can get a particular loan. It is similar to liability insurance on your house; you do not get your premium back at the end of the policy period just because you never made a claim.
Of course as part of the fact-finding process, I asked for copies of his loan documents, and I found a very unusual document. This nonstandard form stated that the borrower had two options regarding PMI: refundable, and not refundable. The client had checked the refundable box. The document implied that the refundable choice would cost extra, but no breakdown of what the cost savings would be was supplied.
So he could get his PMI back, right? NOT SO FAST! The form said “in the event of prepayment or cancellation, any refund due based upon the specific program will be forwarded to XYZ Mortgage Brokerage”. So:
- The loan would have to be paid off;
- Whether there would actually be “any refund”, and/or its amount, was governed by the “specific” but unidentified “program”; and
- The “refund” would be paid to XYZ Mortgage Brokerage, not the borrower!
Obviously, there were plenty of ways for the client to be denied a refund, despite the fact he paid extra for the privilege. Nevertheless, the next step would be to follow up with the mortgage brokerage to see if any money was in fact available. Unfortunately, along with thousands of other mortgage brokerages, the company was no longer in business; so it didn’t look good.
However, if PMI or MIP is part of your monthly payment, you may be able to get it removed from future payments. Part 2 of this blog will tell you how, and will show you how to find out if your loan is FHA, and if so, what the rules are for refunds of MIP.