Is a new title policy required when you refinance your home mortgage in Pennsylvania?
If you plan on refinancing your mortgage, it’s important to understand a common misconception about title insurance. Most homeowners are surprised to learn they will need new title insurance for their refinance. When you refinance, your Owner’s Title Policy will remain intact, but you will be required to purchase a new Lender’s Policy.
Your Owner’s Title Insurance ensures that you have clear ownership rights to the property, free and clear of any other claims to ownership. Your owner’s title policy will protect you against any problems affecting the title to your home.
The Lender’s Title Policy, although paid for by you as the borrower, is required to protect the lender’s investment. When you refinance, even if staying with the same lender, you are obtaining a new loan. When you pay off your mortgage, the existing Lender’s Title Policy is terminated then one is issued for the new loan.
Most mortgage lenders require a new title search at the time of the refinance to protect their investment in the property. During the course of a new title search, issues can arise which can delay the process of closing on the new loan.
Here are 3 examples of issues that can cause problems obtaining the new Lender’s Title Insurance policy when refinancing:
- A lien may have been placed by a contractor who claims he/she has not been paid
- Claims due to bankruptcy
- A judgment was placed on your house due to unpaid taxes, homeowner dues, or child support
Your title agent can help you resolve these title issues. If you find that you have a lien or claims on the property, most likely you will have to pay off any outstanding items as a condition for the refinance. Many insurers generally offer to extend the existing policies of borrowers who refinance at a discount from the standard premiums.