Title Insurance When Refinancing Your Loan

Lower interest rates can be a compelling reason to refinance your home loan. However, it's essential to understand that along with potential savings from a lower rate, you'll also incur typical closing costs associated with any new loan. These costs include service fees, points, title insurance protection, and other expenses.

Here are some common questions and answers regarding title insurance in the context of a refinanced loan:

Why do I need to purchase a new title insurance policy on a refinanced loan?

When you refinance, you're essentially obtaining a new loan to replace your existing one. Just like any other home loan, your lender will want to ensure that their new loan is protected by title insurance. Therefore, purchasing a title policy for your refinance is to protect your lender's interest in the property.

Why does a lender need title insurance?

Lenders typically sell loans to secondary market investors or hold them in their portfolio. To protect their security interest in the loan, investors like FannieMae require title insurance coverage. Even lenders who retain loans in their portfolio often opt for a lender's policy to safeguard their investment against title-related defects.

Did I already buy a lender's policy when I purchased my home?

It's possible. The party responsible for purchasing the lender's policy can vary by region and contract terms. However, even if a lender's policy was purchased when you bought your home, it remains valid only for the duration of the loan it was issued for. When you refinance, a new loan is issued, necessitating a new lender's policy.

What happens to my original title insurance policy?

The homeowner's title policy you purchased when you bought your home remains in force as long as you or your heirs own the property. However, when you refinance, your lender will require a new lender's policy to protect their new security interest in the property. This means you're purchasing a policy to safeguard your lender, not a new homeowner's policy.

Why might a new lender's policy be necessary since I purchased my home?

Various events, such as taking out a second trust deed, mechanic's liens, or legal judgments against you, could occur after your original loan was issued. These events could pose financial risks to an unprotected lender. Getting a new lender's policy each time you refinance ensures the lender is adequately protected against potential title defects.

Are there any discounts available for title insurance on a refinance transaction?

Yes, title companies may offer discounts for refinance transactions or short-term rates. You may also qualify for discounts if you use the same lender for both your original and refinance loans. It's advisable to inquire with your title company about potential cost-saving options.