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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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