Title Insurance When Refinancing Your Loan

Lower interest rates may have motivated you to refinance your home loan—and rightly so. A lower rate can save you a significant amount over the life of the loan. However, just like with any new loan, refinancing comes with closing costs. These include lender service fees, points, title insurance, and other expenses. One cost that often surprises borrowers is the requirement to purchase a new lender’s title insurance policy.

You might wonder: Why do I need title insurance again if I already bought it when I purchased my home? From the lender’s perspective, your refinance loan is treated like any new loan. That means they want their interest in the loan to be protected—just like the original lender did. So, when you refinance, you are essentially purchasing a new lender’s title policy to protect the lender, not yourself.

Even if your previous loan had a lender’s title policy, that coverage only lasted for the duration of that original loan. Once you pay off that loan in a refinance, the policy expires along with it. A new loan means a new risk to the lender, and therefore, a new policy is required.

Meanwhile, your original homeowner’s title insurance policy remains valid. That policy stays in force for as long as you or your heirs own the home. But since that policy protects you (the homeowner) and not the lender, it does not replace the need for a new lender’s policy when refinancing.

So what might have changed since you first bought your home that would justify the need for a new lender’s policy?

• You may have taken out a second loan or home equity line of credit.
• There could be mechanic’s liens, child support liens, or court judgments filed against the property.
• Even in a short period of time, title defects or claims can emerge that would put the lender’s new investment at risk.

Whether or not any of these apply to you, lenders cannot afford to take the risk—and neither can the investors they often sell loans to, such as Fannie Mae. A new title insurance policy is a standard, necessary step in protecting that new loan.

The good news is, there are often discounts available on title insurance for refinance transactions. These may include short-term or reissue rates, and additional savings may apply if you’re refinancing with the same lender you originally used. Be sure to ask your title company about what cost-saving options are available.

In short, while it might feel redundant, buying a new lender’s title insurance policy is a normal and important part of refinancing your home. It protects your lender, ensures the transaction can proceed smoothly, and helps maintain the integrity of your property’s title history.