Lower interest rates have motivated you to refinance your home loan. The lower rate
may save you a tremendous amount of money over the life of the loan, but you should
also expect to pay the lender the typical closing costs associated with any new
loan, including service fees, points, title insurance protection and other expenses.
Why do I need to purchase a new title insurance policy on a refinanced loan?
To the lender, a refinance loan is no different than any other home loan. So, your
lender will want to insure that their new loan is protected by title insurance,
just as the original lender required. Therefore, when you refinance you are buying
a title policy to protect your lender.
Why does a Lender need title insurance?
Most lenders generate loans and then immediately sell those loans to secondary market
investors, such as FannieMae.
FannieMae, in order to protect its security interest in the loan, requires title
insurance coverage. Even those lenders who keep original loans in their portfolio
are wise to get a lenders policy to protect their investment against title related
defects.
When I purchased my home, didn't I also buy a lender's policy?
Perhaps. Who pays for the lender's policy on a purchase loan varies regionally and
by the terms of individual contracts.
However, even if you did buy a lender's policy when you purchased your home, the
lender's policy remains in force only during the life of the loan that was insured.
If you refinance, the old loan is paid off (the "life" of the loan expires) and
a new loan is issued for which the lender will require a new title insurance policy.
What about my original title insurance policy?
When you bought your home, you purchased a Homeowners title policy. The Homeowners?
policy stays in force as long as you or your heirs own the home. When you refinance,
your lender will often require that you purchase a new lender's policy to protect
their new security interest in the property. Thus, you are buying a policy to protect
your lender, not a new Homeowner's policy.
What could possibly have happened since I purchased my home which warrants
a new lender's policy?
Since the time that the original loan was made, you may have taken out a second
trust deed on the house or had mechanic's liens, child support liens or legal judgments
recorded against you - events that could result in serious financial losses to an
unprotected lender. Regardless if it has been only 6 months or less since you purchased
or refinanced your home, a myriad of title defects could have occurred. While you
may not have any title defects, many Homeowners do. The only way for a lender to
adequately protect itself is to get a new lender's policy each time you purchase
or refinance your home.
Are there any discounts available for title insurance on a refinance transaction?
Yes. Title companies offer a refinance transaction discount or a short-term rate.
Discounts may also be available if you use the same lender for your refinance loan
and your original loan. Be sure to ask your title company how they can save you
money.
