Title Insurance for Mortgage Refinance
Your Owner’s Policy is Still Good
Planning to refinance your home? It may seem like a no-brainer, but there are plenty of things to consider in the process. You may be getting a lower rate and reducing your monthly payments, but there are some additional costs. Title insurance is one of them.
If you purchased title insurance when you bought your home, you probably bought coverage for yourself and your lender. An owner’s insurance policy protects you and a lender’s policy protects the lender. Yet if you decide to refinance your home, you may need to purchase a new lender’s policy.
As far as owner's title insurance goes, you purchased it when you bought the home and it remains in effect for as long as you own the property. That means that whether you refinance once or a dozen times, as long as you remain the owner of the property, your title insurance protects you against title defects and hidden encumbrances and claims.
Why a New Lender’s Policy is Necessary
The lender's title insurance policy doesn't insure the new mortgage created when you refinance. That means that the lender is not protected. In any case, the prior policy would not protect the lender against things that happened during your ownership period. For example, it wouldn't protect against a second mortgage on the home that might push back the priority of the new lender's mortgage. Likewise, it wouldn't protect again any court judgments or tax liens filed against you.
In addition, many lenders package mortgages as securities. They sell these in the secondary mortgage markets. These new investors won't buy without security to be sure the mortgages behind the securities are valid and enforceable.
Frequently Asked Questions
Do I need a new lender’s policy if I refinance with the same lender?
If you refinance your mortgage with the same lender, the fee for title insurance may be waived or lowered. Be sure to ask about that when reviewing your closing costs for your refinance. However, even with this advantage you may still find a better rate, lower closing costs, or other benefits with a different lender. Be sure to research all of your options.
What risk is there for the lender in a refinance?
You may wonder why the lender needs protection in a refinance if you’ve been the owner and are still the owner. What the lender doesn’t know is whether or not you have taken out a second mortgage on the home or if there are any mechanic’s liens due to unpaid work on the property. These are things that could cause problems that would require lender’s title insurance.
Will a new title search be conducted during a refinance?
The lender will likely require a new title search to be done before refinancing your property. The title search could possibly uncover issues that were not found the first time. Title insurance provides financial protection if there are any encumbrances.
Should I find my own title insurance company?
There are benefits to doing some research and choosing your own title insurance company. When you refinance your home, the lender may have a title insurance company they typically use, but you are not obligated to purchase your policy from that company. Do your own research to find a quality title insurance provider with a rate and terms you agree with.
Contact us today for more information on title insurance for your refinance.