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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.
Article by CLTA
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