ANZ Bank has begun reimbursing lender's mortgage insurance premiums to borrowers who pay off their home loan earlier than expected.The bank's move comes after the Productivity Commission last year called on all lenders to refund part of the LMI premium levied on borrowers when loans are settled within six years.ANZ is the first major bank to act on the Productivity Commission's recommendation, although Westpac and its regional banking subsidiaries have longstanding refund policies.Under the new ANZ arrangements, borrowers who have taken out a home loan since 1 October 2017 may be eligible for partial refunds of LMI if they clear their loans within two years.Borrowers will be eligible for a 50 per cent refund if the loan is repaid within 12 months of the commencement of the LMI policy. A refund of 25 per cent will be applied to borrowers who repay their loans in full within 24 months.The new refund policy took effect this week and applies to LMI cover issued since October 2017.While the Productivity Commission has been agitating for LMI refunds to be made to borrowers who repay loans within six years, most home lenders still reimburse nothing to borrowers who retire bank debt early.Pressure is likely to mount on CBA and NAB to review their "no refund" rules given that Westpac and ANZ now each reimburse borrowers.However, that could be tricky for CBA and NAB who direct borrowers to specialist insurers such as QBE or Genworth to source LMI cover.While Westpac and ANZ also source some LMI cover through such providers, most of their borrowers' policies are managed through captive insurance vehicles. The captive arrangements appear to have given each of these banks more flexibility to accommodate partial refunds.Westpac's refund structure seems less generous than the one introduced by ANZ.Westpac borrowers receive a 40 per cent refund on the LMI premium if they clear the loan within 12 months, and only 20 per cent if they repay within 2 years.Under the Westpac refund policy, any borrower that misses a scheduled loan repayment ceases to be eligible for an LMI refund.According  to LMI information documents published on the CBA and NAB websites, each bank retains no refund clauses in LMI policies issued to borrowers.The Productivity Commission wants ASIC to intervene in the LMI market to ensure that borrowers are given more flexibility to meet their insurance requirements.The PC has raised the prospect of borrowers  paying for LMI periodically, as occurs for most other types of general insurance.