When determining whether or not to refinance your loan, you’ll be looking at the economic advantage you stand to gain compared to any short- or long-term costs you’ll incur as a result of refinancing. As such, you need to understand all the ways you’ll be financially impacted by refinancing your commercial loan. One oft-overlooked aspect is how refinancing will impact your commercial title insurance policy. Below, we explore how refinancing your commercial loan will affect your title insurance policy.
Will Refinancing Impact Commercial Title Insurance?
You may assume that a commercial title insurance policy will remain unchanged despite refinancing your loan, but that’s typically not the case. One type of title insurance may go unchanged, but another will almost certainly be impacted, and it’s important to understand these policies so that you are not surprised by any additional costs when determining if refinancing is a wise financial move.
As we’ve discussed on the blog in the past, commercial title insurance comes in two different forms. You have a lender’s title insurance policy, which protects the financial institution providing the loan for your commercial venture in the event of an unexpected claim on your title, and there is an owner’s title insurance policy, which protects you as the buyer. If you are getting a loan to secure a commercial property, you will likely be required to purchase a lender’s title insurance policy in order to secure the loan. While you’re typically not required to purchase an owner’s title insurance policy, it’s typically a very smart purchase. This one-time policy will protect you from claims against your property for as long as you own the property. One simple payment can provide a lifetime of peace of mind.
Perhaps best of all, this owner’s title insurance policy isn’t impacted by your choice to refinance. So long as you are holding onto the property, your owner’s title insurance policy will continue to provide protection, and you won’t need to factor re-purchasing this policy when considering refinancing.
However, the lender’s policy doesn’t work quite the same way. Your lender’s title insurance policy remains in place as long as you hold that original mortgage agreement. Since refinancing essentially closes out one mortgage and requires the origination of another mortgage agreement, your lender’s title insurance policy expires when you refinance. You may be able to secure a lender’s title insurance policy for much less than your original policy, as the cost is tied in part to your mortgage amount, but you will need to purchase another lender’s title insurance policy in order to have the financial institution move forward with refinancing.
So while you won’t need to secure two new title insurance policies when refinancing, you will need to plan for the purchase of another lender’s title insurance policy. We will be more than happy to help with securing this policy if you are considering refinancing your commercial property so that you can purchase a comprehensive and financially-smart policy for your specific property.
For more information, or for assistance with any aspect of commercial title insurance or property acquisition, reach out to the team at Commercial Partners today at (612) 337-2470.