How Choosing a Title Company Affects Your Refinancing
The idea of refinancing your home can seem very appealing, but most homeowners do no know that there are additional costs that are incurred, such as having to re-purchase title insurance. When choosing a title insurance company, it’s best to know what the process involves in order to determine the best deal for your investment.
What is Refinancing?
The vast majority of people take out a mortgage when buying a house, as opposed to paying with cash immediately. In doing so, you accrue a debt that is paid off over a period of time with a certain interest rate that is agreed upon by you and the organization lending you money (usually your bank or other mortgage lender). In some instances, revising the terms of the repayment of your loan by replacing it with a new mortgage loan can be beneficial; this is known as refinancing. Often, homeowners extend the period of time over which they can pay back their debt, or take out a new loan with a lower interest rate or better terms.
What is Title Insurance?
Title insurance is very different from other types of insurance. For example, if you take out insurance on your vehicle, you are required to make continuous payments in order to retain coverage on your vehicle. This insurance then protects your vehicle from any future damage or calamities.
Title insurance, on the other hand, is a one-time payment that will protect you and your home from any problems in the past that may come to light after purchasing your property. Title insurance will protect you against defects that may have occurred long before you bought your property, such as the forging of a title deed, or a simple mistake in public records, or even an unknown or undeclared heir.
When purchasing your title insurance, there are two components that you will need to pay for – the lender’s policy and the owner’s policy, which protects both you and your mortgage lender. The lender’s policy covers the amount of the loan, and protects only the lender from any problems, whereas the owner’s policy covers the amount of the entire property, and protects the owner from any title issues.
The Necessity of Title Insurance when Refinancing
Whenever a property changes hands, a new owner’s policy must be taken out in the buyer’s name to protect his investment. In the same vein, whenever a new loan is taken out, or a property is refinanced, a new lender’s policy must be taken out in order to protect the interests of the organization lending money. One might think that if the same buyer is using the same company to refinance the same property, they would not have to take out a new lender’s policy, but this is not the case. A lot of new information regarding your property could have come to light since you purchased it, so when a new loan is issued a mortgage company or bank will want to protect itself from any problems from that point in time. It is a golden rule that the lender will not approve the refinancing unless you redo your lender’s policy.
In essence, because a lender’s policy only covers the amount of the original loan, when this loan changes a new policy must be purchased. However, an owner’s policy covers the amount of the entire investment, and is thus valid for as long as you or your heirs possess the property. Consequently, you do not have to purchase a new owner’s policy when refinancing your home.
At the end of the day, if you are considering refinancing your home, contact your title company first. At Florida Home Title Company, our experienced attorneys and title experts will be more than happy to assist you and help you determine whether or not refinancing is an economically viable choice for you.