Title insurance and refinancing

You may be surprised at the price of title insurance when you refinance your mortgage. In most parts of the country, it's customary for home sellers to pick up some or most of the fees for title insurance and escrow services – when you refinance, you get to pay 100 percent of it.

Title insurance: A necessary evil

Title charges comprise some of the biggest fees involved in a home loan refinance. Lenders require you to buy title insurance for their protection. The lender's policy does not protect you. If you want your interest on the property insured, you’ll also need an owner’s policy – luckily, this is considerably less expensive.

Title insurance guarantees against losses from any defects in title that may exist in the public records at the time you purchase or refinance your property, and certain other risks described in the title insurance policy. Possible title defects include:

  • Errors or omissions in deeds
  • Mistakes in examining records
  • Forgery
  • Undisclosed heirs
  • Missing heirs
  • Liens for unpaid taxes
  • Liens by contractors

Before issuing a title insurance policy, title companies check for defects in your title by examining public records including deeds, mortgages, wills, divorce decrees, court judgments, tax records, liens, encumbrances, and maps. The title search determines who owns the property, what outstanding debts are against it, and the condition of the title.

You CAN save on title insurance

When you compare mortgage quotes and talk with refinance mortgage lenders, they are usually just guessing what the title insurance costs will be and they may get them from a chart provided by an insurer that they work with. However, if the property was purchased or refinanced within the last five years, you qualify for what is called a short-term or reissue rate. Discounts range from five to 60 percent, depending on your state.

Your lender may get a reissue rate quote when completing its disclosures or it may not. That this rate exists is not widely known among the general public, and if you don't ask, you don't get. Industry insiders agree -- there is little incentive for title officers to mention reissue rates because the commission on this discounted policy is much smaller. So it's up to you to shop with several companies, ask about reissue rates, and find out exactly what you need to do to qualify for them.

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