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Why Lenders Require Title Insurance When Refinancing

August 10, 2017

You may have noticed that a lender requires title insurance when refinancing. Here’s why.

Lower interest rates have motivated you to refinance your home loan. The lower rate may save you a huge amount of money over the life of a loan, but you should also expect to pay the lender the typical closing costs associated with any new loan, including service fees, title insurance protection, and additional expenses.

For all of your questions about why you need title insurance when refinancing, read on.

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. Your lender will want to ensure that their new loan is protected with title insurance, just as the original lender once required. In short, when you refinances, you are buying a title policy to protect your lender.

What happens to my original title insurance policy?

You purchased a homeowners’ title policy when you first bought your home. This policy stays in force as long as you or your dependents own the home. When you refinance, your lender will often require that you purchase a new policy to protect their new security interest in the home. Therefore, you are buying a policy to protect your lender, not a new homeowners’ policy.

What title errors could 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 or legal judgments recorded against you. These events could result in adequate financial losses to an unprotected lender. Whether it’s been six months or six years since you purchased or refinanced your home, a vast amount of possible title defects could have occurred. The only way to protect the lender is to get a new lender’s policy each time you purchase or refinance your property.

Are you looking to secure title insurance for your refinance needs? For information on title and how to ensure the property you’re buying is clear of liens and more, visit our team at Fidelity National Title, Orange County.