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  • Blue Pointe Title

Why Do I Need New Title Insurance When I Refinance?

Updated: Sep 5, 2023

a woman signing papers

Many homeowners find it beneficial to refinance their property when interest rates drop. After all, it is a great way to not only end up with a lower monthly mortgage payment but to also save a ton of money in interest over the life of the loan.

Though the savings are great now and in the long run, don’t dismiss the fact that at your new closing, you will be required to pay any closing costs and title insurance fees associated with the new loan.

Already have a lender’s title insurance policy? You are going to need a new one.

Your owner’s title insurance is tied to your property and is not impacted by the refinance, but your lender’s policy is different. Let’s explain.

How Title Insurance Protects Your Lender

You have the choice about whether or not you want to purchase a title insurance policy for yourself, but your lender makes it a condition of the loan. Why is having a lender’s policy so important?

A title insurance policy protects the security interest of the lender. They are taking a leap and providing you with the funds to purchase your property — and they want to ensure they get every penny back.

If anything is missed during the title search or a claim is filed against your property after you take ownership, it can put the lender in jeopardy. Let’s say a valid claim is filed and someone else actually has the rights to your property, you may be facing great financial loss - and the loss of your home.

The money your lender loaned you to buy it? Gone.

Title insurance will kick in and cover the lender for any money outstanding so that they do not have to be part of your loss.

This is why title insurance matters to the lender.

What Happens When You Refinance?

If you purchase a title insurance policy at your first closing, why is the lender requiring you to buy another policy as part of your refinance?

A lender’s title insurance policy is tied to the loan, not the property. So much so that its face value will match the loan you took out. As you make your monthly mortgage payments and the loan amount begins to decrease, its value will, too.

When refinancing, the current loan is paid off and satisfied. This wipes out the lender’s title insurance policy.

As your new loan is put in place, your lender will undoubtedly require you to buy a new title policy, as well. Remember, it does not matter if you are refinancing with the same lender or if it is the same borrowers and the same property — the title insurance is tied to the loan and therefore will require a new policy of its own.

Does the New Title Policy Include New Title Issues?

When you initially bought the property, a title search was done. This was to confirm there were no title defects before you took ownership. This new title insurance policy confirms that nothing new has been attached to your title since that time.

It doesn’t matter whether you have owned your property for 6 months or 16 years, the lender is protecting themselves with this policy – and they want to make sure the title is clear before they give you a new loan.

Want to Learn More About Title Insurance?

If you are refinancing and still have questions about title insurance, the experts at Blue Pointe Title can help. We are here with you every step of the way. Contact us today!



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