Why Lenders Require Title Insurance When Refinancing

Lower interest rates may motivate you to refinance your home loan. The lower rate can save a tremendous amount of money over the life of the loan, but you should also expect to pay the lender typical closing costs — including a new title insurance policy. To the lender, a refinance loan is no different than any other home loan, so your lender will want to insure that its new loan is protected by title insurance, just as the original lender required.

When you bought your home, you purchased a homeowner's title policy. That owner's policy stays in force as long as you or your heirs own the home. When you refinance, your lender requires that you purchase a new lender's policy to protect its new security interest in the property. You are buying a policy to protect your lender — not a new homeowner's policy.

Most lenders generate loans and then immediately sell those loans to secondary market investors, such as Fannie Mae. Fannie Mae, in order to protect its security interest in the loan, requires title insurance coverage. Even lenders who keep loans in their portfolio are wise to get a lender's policy to protect their investment against title-related defects.

Since the time that the original loan was made, you may have taken out a second trust deed, had mechanic's liens recorded, or had child support liens or legal judgments recorded against you — events that could result in serious financial losses to an unprotected lender. Even if it has been only six months since your last purchase or refinance, a myriad of title defects could have occurred. The only way for a lender to adequately protect itself is to get a new lender's policy each time.

Team Goeglein at Fidelity National Title provides fast, accurate refinance title and escrow services across the South Bay and Westside LA. Matt Goeglein and Xavier de la Piedra IV coordinate with loan officers to meet rate-lock deadlines while ensuring clean title on every refinance closing.