Can I get a refund on indemnity insurance?

Can I get a refund on indemnity insurance?

Q I took out a mortgage when I was buying my first flat. Due to my age (24 at the time), one of the conditions the bank imposed was that I buy mortgage indemnity insurance (MII), which cost approximately £3,500 (the cost of the insurance was added to the loan).

The mortgage term was 25 years. However, after two years the fixed period ran out and I transferred the mortgage to a different lender.

As the MII insurance was to cover the bank for the 25-year duration of the mortgage, am I therefore not eligible for a part refund of this insurance as the cover would have been cancelled after just two years? SO

A The fact your lender made you pay for mortgage indemnity insurance when you took out your mortgage with them was less to do with your age and more likely to do with the size of the mortgage in comparison with the value of the flat when you bought it.

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Mortgage indemnity insurance provides the lender – not the borrower – with extra security on top of the basic security of the mortgage should you be unable to repay the mortgage and the property has to be repossessed. Borrowers are usually asked to pay for this extra security when they borrow more than 75%-90% (depending on the lender) of the value of a property.

Also dressed up with names such as "high lending fee", "high percentage loan fee" or "additional security fee", any money paid by a borrower to provide this extra security for the lender is essentially a fee from lenders for allowing borrowers more than they would normally be willing to lend. Or, to put it another way, it is part of the cost of taking out a high loan-to-value mortgage in the same way that taking out a fixed-rate deal typically involves an arrangement fee.

In your case, if you hadn't paid the £3,500 your lender would not have granted your mortgage. The fact your mortgage lasted only two years is irrelevant. And given that the fee you paid bought one-off insurance for your lender, rather than you, it means you are highly unlikely to quialify for a refund.

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