Why Do I Need Title Insurance When Refinancing

A title search is done anytime a piece of real estate moves from one owner to another. And, a new title insurance policy is purchased. Sometimes two – an owner’s policy and a lender’s policy. 

But is all of that necessary when refinancing? The property isn’t changing hands – it is the same borrower, same lender, same property. Do you need a new title insurance policy? Believe it or not, it is standard for lenders to require a new title insurance policy. And we are going to explain why. 

What is Title Insurance? 

It is important to make sure the title is free and clear of anything that may interfere with your rights to it once you take ownership. In other words, when you take ownership, you want to feel confident in holding the title. An in-depth title search before the closing takes place by an experienced title team. They search through any and all records concerning the property to confirm that there are no liens, judgments, easements, and others to jeopardize your property rights. To obtain a title insurance policy, you simply pay a one-time fee at closing, and you are covered for the entire time you have an interest in the property. 

While an owner’s title insurance policy is in place to protect you, a lender’s title insurance policy is necessary to protect the lender – and many lenders require it. If you financed your property, there is a good chance your lender made it a condition of your loan. And for good reason – they are giving you money to purchase a home which means they need to have precautions in place should something go wrong. This policy will reduce their risk. 

A lender’s title insurance policy is valued for the amount of the loan – and only in effect for the length of it. As you pay down your loan, the value of your policy goes down, as well. When you satisfy your mortgage, the policy is wiped out as it is no longer necessary. 

It is for this reason that you need a new lender’s title insurance policy. 

Refi’s and Title Insurance: Why You Need It

During a refinance, your current mortgage will be satisfied and a new loan will be acquired. Yes, it is the same property you already own. And, while everything else remains the same, the loan is different. Remember, the lender’s title insurance policy gets wiped out when the loan is paid off. So when your refinance takes care of paying off your current mortgage to put the new loan in place, it is essentially canceling out your title policy, too. 

For the new loan to be protected, it is going to require its own lender’s title insurance policy valued at the amount of the new loan. Your lender wants to remain in the first lienholder position on your property. And they will take every step necessary to ensure that the new loan – and the lender – are protected. That means requiring a new policy during the refinance. 

Keep in mind that if you purchased an owner’s title insurance policy the first time, it will still remain in effect today. Therefore during a refinance, you are only buying a lender’s title insurance policy.

Allied Title & Escrow provides residential and commercial services throughout all counties of VA, DC, and MD and is licensed from PA down to FL. Their team of industry experts and attorneys strive to provide the highest level of service and will handle all aspects of the settlement process.