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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.
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