Why You Need Mortgage Insurance

Transcription

1 Why You Need Mortgage Insurance What Is Mortgage Insurance For? If you have taken a mortgage or a housing loan, a mortgage insurance offers you financial safety in case you will no longer be able to pay because of permanent disability, or death. The unpaid portion of the loan can still be settled with insurance. In Singapore, a mortgage insurance is known as Mortgage Reduced Term Assurance, or MRTA. This refers to the way the coverage is reduced as the home loan is gradually repaid.

2 Mortgage Insurance for HBD Flats Mortgage insurance is necessary for buying an HDB flat if you are paying in monthly installments through your CPF account. You have the option of taking the Home Protection Scheme offered by CPF, or other suitable insurance packages available from private insurance providers, like Whole Life Term Life Endowments Life Riders (must be attached to a basic policy) Mortgage Reducing Term Assurance (MRTA) / Decreasing Term Rider Source: CPF Ask Us, What types of insurance policies can be used for Home Protection Scheme (HPS) exemption? This may lead you to wonder which is better for you - the Home Protection Scheme, or a private mortgage insurance plan? You can take a look at the table below for a quick comparison. Table 1: Comparison of HPS and Private Mortgage Insurance Home Protection Scheme (HPS)* Private Mortgage Insurance

3 1. Premium can be paid using the CPF balances in ordinary account 1. Premium cannot be paid using the CPF balances in ordinary account 2. Added insurance coverage / riders are not allowed 2. Added insurance coverage / riders are allowed 3. The insured sum of money is given directly to HDB or the bank to pay off the outstanding mortgage 3. The insured sum of money is given to the beneficiary to pay off the mortgage or utilise for other purposes 4. Non-transferable. The policy will be terminated if you sell the house or redeem the loan earlier. Thus, you may have to incur a higher premium, if there is an increase in age or 4. Usually the remaining insurance coverage can be transferred to the new mortgage loan if you refinance/reprice or dispose of your current flat and buy a new one medical conditions, when you buy a new policy. If you refinance/reprice and there are changes to the loan tenure and/or amount, your current policy will also be

4 terminated and you will issued with a new one. 5. No refund of premium or cash value (surrender value) at any time 5. Some insurers, from time to time, may introduce policies that refund the premium for early termination, or at the end of the term of the policy if no claims are made 6. Annual payment 6. Flexible payment mode: i. Regular premium: monthly, quarterly, half-yearly or yearly payment ii. single premium: one-time lump sum payment (a portion maybe refundable upon early termination) 7. Single coverage only 7. Single, joint or dual coverage available 8. Premium is payable for 90% of the 8. For regular premium, premium is

5 coverage period payable for 75% to 90% of the coverage period 9. Coverage up to 65 years old 9. Total and permanent disability coverage usually up to age 65. But death coverage can be beyond that *Information is correct at time of publishing. If in doubt, please contact HDB. You can tell from the table above that a private plan has a few good points. If you would like more detailed information about the advantages that come with this option, you can have a free consultation with one of the experts at icompareloan.com. Mortgage Insurance for Private Residences A mortgage insurance is not required for private home units, so you are free not to obtain one for your residence. If you should choose to have one, the only option is to acquire a mortgage insurance plan from a private insurance company. So, should you secure a mortgage insurance for your home or not? Below are a few good reasons you should consider.

6 The Benefits of Mortgage Reduced Term Assurance 1. MRTA is more affordable than life or term insurance plans. Both life and term insurance plans can provide security for your home loan, though these will require you to pay the premium throughout the entire tenure. An MRTA on the other hand, normally doesn't require premium payments for the last few years of the loan tenure. A regular premium usually involves a paying only up to 90% of the loan tenure, while a single premium may have a partial refund for early termination. You also have to remember that life and term insurance plans tend to involve a higher premium than an MRTA. An MRTA has a lower premium since its coverage is specifically for the mortgage. In addition, an MRTA lets you add extra coverage at a lower cost. In case you initially chose a stand-alone plan, you can later buy a rider for additional benefits, such as a policy for debilitating ailments. 2. MRTA gives you options on how to pay.

7 Most insurance companies will offer various payment schemes for MRTAs, which will allow you to choose how to manage your finances. You can select the regular premium which calls for yearly payment, or even a monthly, quarterly, or half-yearly scheme. You may even opt for a single premium, which involves paying the whole amount all at once. 3. You can choose the kind of coverage you want. There s single as well as dual coverage; a few insurance companies even offer joint coverage. What s the difference between dual and coverage, you may ask? Dual coverage involves two separate insurance plans that each assume the entire mortgage. For a joint coverage however, the mortgage is funded by two people. When any one of them dies, the insurance will cover the unpaid mortgage and the surviving person no longer needs to pay it. 4. MRTA has portable coverage. If you opt to refinance, or resell your current home to buy a new unit, there s no need to acquire a new MRTA plan. This is suitable for many individuals, since a new plan means a higher premium for senior citizens or those with medical conditions - in some cases, it may even be impossible to buy a new plan.

8 5. Reselling your property isn't as profitable as you think. Some homeowners are convinced that in case they or their families become unable to pay their mortgage, either because of the death of the mortgage borrower or their permanent incapacity, they or their families can easily resell their property to obtain money. But this is an unwise strategy, and I ll tell you why. Selling property always takes a lot of time. First of all, the owner will need to wait until he finds an interested buyer. Next, there are a lot of paperwork to make the transaction official. After all that, the owner will need to wait to receive the payment. If he is lucky, it would take a number of months before he obtains the sale monies, but he may not be able to pay the mortgage in the interval. If the owner isn't so lucky and the property market isn't doing well, his home may be valued below the unsettled mortgage. Whatever money he makes from the sale won t even be enough to pay the mortgage. On top of it all, he will no longer have any home to live in. If you had an MRTA for your home loan, you can avoid these unpleasant scenarios.

9 For advice on a new loan, go here. For refinancing advice, go here. Read more articles at PropertyBuyer.com.sg/articles SingaporeHomeLoan.net/blog/ icompareloan.com/resources/category/faq/

10 About Mortgage Consultants icompareloan Mortgage Consultants is a research focused independent mortgage broker. We emphasize a consultative approach where we match our client s financial situation with the best fit mortgage loan, not simply a cheap loan. Paul Ho is the editor of and and he holds a Masters of Business Administration from a reputable university. He is passionate about helping people enhance their wealth through financial literacy and in making money work harder for them. sales@icompareloan.com Tel: SMS: For agents, mortgage brokers and financial advisors, subscribe to the home loan reports at and impress your clients with detailed home loan analyses which facilitate property buying and selling. Copyright - All articles are the copyright of and CoreConcept Systems Pte Ltd and the company reserves full rights to use, reuse in any form or in any media with or without attributing authors or supplanting the name of one author with another.