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Title Insurance When Refinancing Your Loan
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.
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