Aaron Bell
Athena Cocoves
If you pay mortgage insurance over some or all of the term of your home loan, you may also be entitled to a refund at some point.
What is mortgage insurance?
A home loan is the largest financial commitment most people make in their lifetime. A mortgage can last up to 30 years, and your financial situation can change during that period. So, many mortgagees opt for mortgage protection insurance (MPI) to cover repayments if they cannot work due to injury, illness or death.
Mortgage protection insurance differs from lenders mortgage insurance (LMI). That type of insurance is designed to protect the lender, not the borrower, should you be unable to make repayments.
Why are some homeowners owed a refund?
Insurance is a form of credit, and credit issuers often come under scrutiny for failing consumers. Luckily, government bodies, such as the Australian Securities & Investments Commission, are responsible for regulating financial services and consumer credit.
In 2020, ASIC announced “over $160 million in remediation for consumers sold junk consumer credit insurance (CCI). This follows ASIC’s 2019 report (REP 622) on the sale of CCI by 11 major banks and lenders across eight years, which found that the design and sale of CCI had consistently failed consumers.”
According to the report, nearly half a million Australians who were sold CCI have been refunded or are entitled to a refund.
CCI covers consumers who cannot meet their minimum loan repayments due to unemployment, sickness, or injury or who will be unable to pay the outstanding loan balance upon death. CCI is optional and usually sold by lenders to consumers with a credit card, personal loan, or home loan. Based on this definition, mortgage protection insurance is considered a form of CCI (see the full report).
» MORE: What is consumer credit insurance (CCI)?
Who’s entitled to a mortgage insurance refund?
Remediation is paid where:
- Lenders sold CCI policies to consumers who were ineligible to claim or unlikely to benefit or need cover. To date, $105.8 million worth of refunds have been paid to over 244,000 customers.
- Lenders used pressure selling or other unfair sales tactics, such as making false representations, to sell CCI to consumers. To date, $37.34 million in refunds went to more than 48,000 customers.
- Consumers were incorrectly charged for CCI, or their claims were incorrectly declined. To date, $13.9 million worth of refunds have gone to 57,000 customers.
- Lenders had inadequate consumer-focused processes to help those in hardship or trustees of deceased estates who had a CCI policy to lodge a claim: $5.06 million was paid to over 1,000 customers.
- Consumers received no, or very little, value from the product: $5.77 million was paid to over 84,000 customers.
General requirements
ASIC covered the following 11 lenders in the review:
- Australia and New Zealand Banking Group Limited
- Australian Central Credit Union Ltd
- Bank of Queensland Limited
- Bendigo and Adelaide Bank Limited
- Citigroup Pty Limited
- Commonwealth Bank of Australia – Retail Banking Services and Bankwest
- Credit Union Australia Limited
- Latitude Finance Australia and Latitude Personal Finance Pty Ltd
- National Australia Bank Limited
- Suncorp-Metway Limited
- Westpac Banking Corporation.
» MORE: Types of home loan lenders in Australia
LMI-provider and/or lender-specific requirements
Lenders mortgage insurance (LMI) refunds are assessed differently. Most lenders outsource their LMI to Helia and QBE, two of the largest insurance providers in Australia. This means when an LMI policy is written, the insurer charges the lender, who passes on this cost to you.
Depending on your lender, you may be entitled to a partial refund of your LMI fee if you repaid your home loan within two years of the settlement date, according to Helia and QBE.
If you pay off your home loan in less than two years, you should contact your lender about applying for an LMI refund. They must pass this refund on to the LMI provider within the timeframe established in your contract.
How to apply for a mortgage insurance refund
Each case will vary, but you can claim a mortgage insurance refund if:
- It was sold to you despite the fact you were not covered
- It was added to your mortgage without being explained properly
- A claim was incorrectly denied.
Process to claim
If you believe you are entitled to a refund, you can seek private representation or contact the Australian Financial Complaints Authority (AFCA). AFCA independently assists consumers and small businesses in making and resolving complaints with financial companies over insurance products, including CCI.
You can also visit the National Debt Helpline Website for steps to make a claim on insurance consumer credit.
» MORE: What is financial counselling?
What to do if your claim is denied
If AFCA denies your claim, you can sometimes take further legal action. However, doing so may result in going to court. So, you should understand the financial impact of taking a claim this far — it may cost you more than the actual payout.
If you wish to complain about how AFCA dealt with your complaint (but not the outcome of your complaint), you can raise the issue directly with AFCA and the scheme’s independent assessor.
You can find more information on what to do if you are dissatisfied with the AFCA decision here.
About the Author
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