Considering refinancing your home? Be sure you are prepared to pay for another lender’s title
insurance policy at closing. Why?
When you refinance a home, you are simply paying off one loan to take out another one, usually
at a better interest rate. So, you are still subject to most of the same lender requirements,
closing costs, and fees as you were on the original mortgage closing. One of those
requirements is title insurance.
The Two Types of Title Insurance
Title insurance protects buyers and lenders against loss or damage due to defects in title, such
as document forgery, encroachments, undisclosed heirs, and liens. The title is proof of proper,
legal ownership, and title insurance ensures a clear and outright ownership claim to the
property.
There are two types of title insurance policies:
● Owner’s title insurance protects the interests of the owner against issues with title that
may arise at any point while they own the property.
● Lender’s title insurance protects the lender’s interests for the amount of the loan. It’s
their protection against any losses. These policies last for the lifetime of the mortgage.
When refinancing your home, you will be required to purchase another lender’s title insurance
policy.
Why a New Lender’s Policy is Necessary for Refinancing
Even though you purchased title insurance when you bought your home, you will have to
purchase a new title insurance policy when you refinance. That’s because the original policy
doesn’t insure the new mortgage created when you refinance, so the lender is not protected.
But just what, you may ask, could possibly have happened since you first purchased the home
that would warrant needing a new lender’s title policy? If the title was cleared the first time, what
risk is there now?
Plenty, as it turns out. Maybe you took out a second loan or had legal judgements or liens
recorded against you. These could all result in losses to the lender if they are not protected by
title insurance. While you may know without a doubt this isn’t the case for you, it does happen.
The only way a lender can protect itself is to get a new policy each time a loan is taken out.
In the end, refinance loans are new loans that require a new lender’s title insurance policy. Don’t
forget to include this expense in your budget as you make plans to refinance your home.
