Refinancing & Your Title
Did you know that the lender’s financial stake in the property is greater than yours?
When you, the borrowers, give a mortgage to a lender, you give the lender an interest in your property as security for your promise to repay the loan. This means that as long as the payments on the loan secured by the mortgage are being paid, the lender's interest is junior to yours.
However, in the event you fail to meet the terms of your agreement, the lender has the right to have your interests in the property extinguished through foreclosure - which enables the lender to take or sell the property to satisfy the debt you owe.
When you refinance your mortgage, a new title insurance policy insuring the new mortgage will be required. This is because the old policy specifically insured the old mortgage, which will be released when the new mortgage is recorded. A title search will be required from the date of the last policy to determine if there have been any liens, encumbrances, or transfers of interest regarding the property since the earlier mortgage. The new policy will have a later "effective date," which usually is the date the new mortgage is recorded. The new policy will insure that the old mortgage has been released, and that the new mortgage is an enforceable first lien against the property as of the new effective date.
This type of insurance is commonly referred to as the "homeowner's policy." It protects you, the insured, against loss which could be sustained in the future as a result of fire, theft or other mishap. If you are refinancing your property with a new lender, it will ask that you provide evidence that its name has been added to your homeowner's policy for this purpose.
If your property is located in an area requiring the purchase of flood hazard insurance, the lender will ask that you demonstrate that you have this insurance and that you have added its name as a "loss payee" as part of its requirements for the refinancing. If the premiums are current, refinancing will not result in additional flood insurance premiums. Of course, as with homeowner's insurance, a new premium is payable each year.
If you do not presently have mortgage insurance, you may be required to purchase it if the amount of your new loan has a higher loan-to-value ratio. If the ratio is reduced as a result of the refinance, borrowers who presently have mortgage insurance may no longer be required to purchase it. Some companies refund the unused portions of prepaid premiums. If you change mortgage insurance companies, you may be required to pay a new initial year premium as a result of refinancing through a new lender.
Credit Life Insurance
If you have credit life coverage prior to refinancing, you may have difficulty transferring the coverage to the new mortgage. The transferability of your coverage may hinge on a) an agreement with your lender and b) the amount of coverage for the existing mortgage being less than the new mortgage amount since credit life is declining term coverage. Where the policy is transferable and the annual premiums are paid to date, you must notify your carrier to add the name of the new lender as loss payee.