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Why Lenders Require Title Insurance When Refinancing Your Home
By Matt Unangst, 23 Jan 16:37
• Refinancing is no different from the original loan to the lender
• A lender’s policy is valid only for the life of the loan, a homeowner’s policy stays valid as long as you own your home
• New liens could have emerged since you bought your home
• Discounts may be available for refinancing
Many people refinance their homes when interest rates are lower than when they originally bought the home. A lower interest rate can save you many thousands of dollars over the life of the loan, but there are costs associated with refinancing that you may not have taken account of.
For a lender, issuing a refinance loan carries the same risks as issuing the original home loan. Thus, the lender will require you to pay the closing costs you would pay for any loan when refinancing. Included in these closing costs is a new title insurance policy for the lender.
When buying your home, your lender required you (or the seller, depending on the laws in your area) to buy a lender’s title insurance policy prior to issuing your loan. This policy, however, is valid only for the life of the loan, so a new policy is needed if you refinance.
Lenders usually sell the loans they generate to second market investors like FannieMae. These companies require title insurance to protect their investment in the loan. Lenders that don’t sell their loans to other companies generally want title insurance for the same reason.
The reason a new policy is necessary is that new liens may have emerged since you bought the home. If you took out a second trust deed, it may create future problems with your title, as would any mechanics’ or child support liens, or any legal judgments against you. Lenders want to be protected against any future clouds on your home’s title from problems that could be averted.
Fortunately, title companies frequently offer discounts to people who are refinancing or looking for a short-term rate. Others will offer you discounts if the lender you are working with is the same lender that issued your original home loan. Talk to your title company to find out more about any special rates.
KEYWORDS: title insurance, title company, home loans, refinancing, real estate
Tags: lender title insurance