It is well known that title insurance is a necessary part of any commercial real estate purchase. It protects the buyer and the lender from defaults in title including outstanding taxes, liens, previous deeds, etc. In Texas, the Texas Department of Insurance (“TDI”) regulates and prescribes rules for title insurance companies and policies. Its role includes auditing and regulating title insurers, dictating which endorsements are available to policyholders, and setting up the exact forms and language included in the insurance policies.
TDI also sets the pricing for title insurance policies. It does this through an issuance of rate rules. The set rate for a title insurance policy is a function of the amount of the purchase (or the loan, for a mortgage policy) and is called the Base Rate. The Base Rate can be adjusted through specific TDI Rate Rules. One particularly useful rule, of which many landowners are unaware, is TDI Rate Rule R-8. Rule R-8 prescribes a discount for a refinance of a mortgage if it happens within seven years of the original purchase of the property.
Specifically, Rule R-8 states that if a lender takes a new loan that pays off the existing loan, the premium on the new mortgage policy will be the Base Rate less a specific discount determined by when the original mortgage policy was issued. The younger the original policy is, the greater the discount rate.
The Base Rate is reduced by:
- ·40% if the refinance occurs within 2 years of the original Mortgage Policy;
- 35% if the refinance occurs between 2 and 3 years;
- 30% if the refinance occurs between 3 and 4 years;
- 25% if the refinance occurs between 4 and 5 years;
- 20% if the refinance occurs between 5 and 6 years; and
- 15% if the refinance occurs between 6 and 7 years.
As a result, a property owner who refinances his or her property can have substantial savings on the new mortgage policy that the new lender will require. Make sure to ask your title company about Rule R-8 and if you have any questions, please do not hesitate to contact us.