Bye-Bye Prepaid PMI Refunds? Fourth Circuit Weighs In
If you’ve refinanced your home recently to score a better interest rate—or just to ditch private mortgage insurance (PMI)—you might ask a big question. What happens to all that money you prepaid for PMI? Well, the Fourth Circuit Court of Appeals has an answer. Unfortunately, it’s not the one homeowners were hoping for.
On June 16, 2025, a ruling made it clear. Homeowners who cancel PMI voluntarily—like when they refinance—can’t expect a refund for unused premiums.
What Is PMI, Anyway?
PMI is a type of insurance most buyers need when putting less than 20% down on a home. It protects the lender, not the homeowner, in case of default. PMI isn’t free, of course. Homeowners either pay monthly, in chunks upfront, or use a mix of both.
But here’s the catch. If you pay upfront and your need for PMI disappears—maybe because you refinance or pay down your balance—you might think you’d get some money back, right? Nope.
The Court’s Decision
The Fourth Circuit pointed to the Homeowners Protection Act of 1998. It’s a federal law designed to help borrowers by outlining when PMI should be canceled—and even refunded. But here’s the twist. The court decided the refund rules don’t apply if you decide to cancel early, like during a refinance.
This decision impacts states under the Fourth Circuit’s jurisdiction. That’s Virginia, West Virginia, Maryland, North Carolina, and South Carolina. If you live in one of those states, this ruling now sets the standard.
What Does This Mean for Homeowners?
Imagine this. You’re in Virginia. You prepaid three years’ worth of PMI—around $3,600 upfront, in order to save some money in the long run (some lenders offer a lower cost if paid in full). After a year, you refinance and no longer need PMI. You paid for three years but used only one. Shouldn’t the lender refund the remaining $2,400? Not under this ruling. That money stays with the lender.
It’s frustrating. Many homeowners budgeting for upfront PMI assume they’d get back whatever they didn’t use. But this decision says otherwise.
Is This Fair?
Good question. Some might argue it’s unfair to keep what wasn’t utilized, especially when homeowners didn’t default. But others say the contracts (and the law) are pretty clear—so it’s up to borrowers to read the fine print.
Does This Affect Every State?
Nope. This ruling is specific to the Fourth Circuit. If you’re in California, Texas, or New York, things might work differently. But rulings like this can influence similar cases elsewhere. If you’re curious about how it works in your state, reach out to an attorney or lender for details.
What Can You Do?
Here’s the bottom line. Homeowners should weigh their PMI payment options carefully. Monthly payments might be more expensive long-term, but they’re simpler. You’re not locked in. On the other hand, upfront payments could save money, but with a major risk—no refunds if plans change.
Before you make a choice, ask your lender lots of questions. Things like, “What happens if I refinance? Will I get a partial refund?” Don’t assume. Clarify upfront.
Lessons to Learn
This ruling is a wake-up call. Mortgage documents are full of details that don’t seem important—until suddenly they are. While refinancing is often a great decision financially, make sure you’re not leaving money on the table. You worked hard for it, after all, didn’t you?
Planning to refinance soon? Stay informed, read the terms, and ask questions. It could save you from surprises—like this one.