Title Insurance: Why Do I Need It When Refinancing?

Real Estate Agent with Thompson Real Estate

When a property changes from one owner to the next during a real estate transaction, a title search will be done and a new title insurance policy will likely be purchased. During the closing on your home, you likely had a title search done - and you probably purchased title insurance. And, now that you have taken the step to refinance, you may feel as though you don’t need to worry about title insurance since you already purchased the policy before - and the property is not changing hands, right? Wrong. 

When you are refinancing, your lender will almost always require a new title insurance policy. Here’s why. 

What is Title Insurance? 

When taking ownership of a property, you need to make sure that there are no issues with the title. This is why title companies perform a title search before you close, ensuring that there is nothing to interfere with your ability to take ownership. That means no liens, judgments, easements, etc. clouding the title.

There are two types of title insurance policies, lender’s policies and owner’s policies. The former protects the lender’s rights and the latter, yours. At the closing, if you bought both, you would have paid a one-time fee for each that would leave you with a policy and protection. The owner’s policy will protect you for as long as you have an interest in the property. The lender’s policy, however, is different. 

Title insurance required by your lender protects the lender. They have given you money to buy your home and they want to protect their interest in it should something go awry. This policy will be for the amount of your mortgage at the beginning and will slowly decrease in value as you pay down the loan. Once the mortgage is paid off, the title policy will be canceled, too. 

If you refinance, your owner’s policy remains the same. Not so much for the lender’s policy.

Title Insurance And Your Refinance

Refinancing means that your current mortgage is going to be satisfied and a new loan will take its place. Yes, it is the same property and the same buyer - but the loan is new. And since the lender’s title insurance policy protects the loan, when the loan gets paid off, the title insurance policy gets closed out as well. 

As the new loan is put in place, the lender is at risk without the title insurance policy. You need a new lender’s policy that protects the lender for the new loan and the new loan amount. 

Here’s the thing - your lender wants to be the first lienholder attached to your property. Should something happen, they want to secure their interest in it. With a new lender’s policy, you can ensure that the new loan is safe and protected regardless of whether any defects in the title. 

Allied Title & Escrow, LLC offers title services, including title searches, title insurance policies, and closing services. To learn more, visit www.AlliedTitleandEscrow.com

Comments (2)

Bill Salvatore - East Valley
Arizona Elite Properties - Chandler, AZ
Realtor - 602-999-0952 / em: golfArizona@cox.net

Great information.  Thanks for sharing and enjoy your week!

Oct 04, 2022 01:48 PM
Susan Aincham
Self - Salt Lake City, UT
Real Estate Investor

This was great thank you!  I want to repost it but was not able to send you a message?  Please let me know it is ok.

Nov 09, 2022 06:07 PM