5 Good Reasons to Get Mortgage Insurance

A lot of Singaporeans decline mortgage insurance, and mostly because of the sales pitch. I mean, here you are taking on a lifetime debt, and they’re next to you whispering: “Bet you die before you pay that off.” As far as obnoxious goes, that’s just short of poking the body at a funeral. But put aside the psychological unpleasantness, and you’ll see mortgage insurance isn’t such a bad deal. In fact, it may even be a smart choice for private home owners. This article explains why:


HDB Flat

So if I lose my income, my flat’s paid for? Get my boss on the line; I need to tell her she’s an ass.


What is Mortgage Insurance?

In Singapore, mortgage insurance is usually called Mortgage Reduced Term Assurance (MRTA). This insurance plan covers your home loan, so that if you lose your income, your family will have enough to pay off your home loan. The MRTA provides a lump sum pay out (assured sum), which gradually decreases as the home loan is amortized (paid off).

With few exceptions (e.g. the family’s sole breadwinner is immortal), it’s highly advisable to have MRTA. In the event of disaster, at least your surviving family won’t be showering in longkangs.

MRTA pertains mainly to owners of condos or landed property, since HDB owners use the compulsory Home Protection Scheme (HPS). However, HDB owners may approach private insurers as an option.

The reasons to get MRTA are:

  • Property is illiquid
  • Premiums end before loan tenure
  • Comparatively low premiums
  • Transferable insurance
  • Fairly wide coverage


1. Property is Illiquid


Uncle sleeping at the coffee shop

Don’t worry about it. All our property agents are hard workers.


What happens if you lose your job? A common belief is that the outstanding home loan isn’t a problem: Just sell your house. Ta-daa, situation fixed.

But property is illiquid. It could take months to advertise, conduct viewings, and negotiate prices for your house. And even if your house is desirable, how many buyers can manage, say, $500,000 – $1,000,000 without financing? You’ll have to wait for the other party to work out their loan as well.

And in the meantime, you still need to make loan repayments.

In our experience, “fire sales” are often messy. The house is typically sold at a loss (because of the speed required), and the family might even end up with one or two months of unpaid home loans. Then there’s the issue of finding a new place.

If you’re in a situation with significant risk (e.g. you’re self-employed and the sole breadwinner), opt for the insurance.


2. Premiums End Before Loan Tenure


Bungee jumper

“It’s alright guys, I have mortgage insurance.”


A common worry about MRTA is that it’s not worth the premiums, especially toward the end of the term. The assured sum has substantially decreased, so what’s the point?

Insurers figured that out too. Since anyone who can handle accounting problems harder than 2+2 would let the policy lapse, insurers charge premiums for only a part of the loan tenure. For example, AIA only makes you pay premiums for 75% of your home loan. So if you’ve taken a 30 year home loan, you’ll only be paying premiums for only 22 years.


3. Comparatively Low Premiums


Me holding up $2

That’s the highest premium I’ll pay. Human test subject is a very safe job.


Compared to most forms of insurance, MRTAs have low premiums.

Standard life insurance can also shield your family from homelessness. But life insurance involves extensive coverage, which translates to high premiums. Because MRTA is specific, you can expect premiums to be 20 – 30% lower.

(Note: If your MRTA premiums match your life insurance premiums, it’s usually because of riders, such as an option to cover debilitating illness. You can choose to decline these).

Also, as mentioned in point 2, the term of your coverage exceeds the term of your premium payments. Most insurance plans decrease premiums as you get older, which can make them superficially more attractive. But compare the many years of free coverage you get (at least 20% of the loan tenure), and you’ll see MRTA is just as cheap, if not cheaper.


4. Transferable Insurance

A MRTA is transferable. In other words, if you sell your currently insured property and buy another, you can continue with the same MRTA plan.

So if you repay your first property, and buy a second to rent, you can transfer the remainder of your MRTA onto that second property.

As an aside, please don’t repay your home loan early if you have a prepayment penalty. You’ll end up paying around 1.5% of your home’s cost as a penalty. You can follow us on Facebook if you’re not sure about home loan issues; we’ll keep you updated.


5. Fairly Wide Coverage


Parkour guy balancing on a ledge

“Good thing you bought the ‘Being a damned moron’ coverage.”


As I mentioned in point 3, MRTA derives its advantages from being very specific.

But everyone has their needs; for all I know you spend weekends free-climbing Mt. Everest. In which case, I should mention MRTA policies are packed with coverage options. It’s possible to add medical reimbursement, weekly indemnities, and debilitating injuries as riders.

Before adding all these riders though, do compare it to the cost of general insurance. Remember that MRTA gets a bit pointless, if the premiums end up costing you as much as full blown life insurance.


Interested in Getting a Home Loan With MRTA?

Before thinking about mortgage insurance, it’s important to determine the nature of your home loan. The loan amount and tenure are important considerations; in some cases (such as very short loan tenures), MRTA may be unnecessary.

Use loan comparison sites like SmartLoans.sg to figure out your repayments; then decide if you’d feel more secure with MRTA.

Image Credits:
Nicolas Lanuzel, carla777@sbcglobal.net, geishaboy500

Do you currently have mortgage insurance? Comment and tell us why (or why not)!

Get more Personal Finance tips and tricks on www.MoneySmart.sg

Click to Compare Singapore Home Loans, Car Insurance and Credit Cards on our other sites.

More From MoneySmart

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • US renews travel warning to Mindanao
    US renews travel warning to Mindanao

    The US State Department renewed its warning about the risks of travel to the Philippines, in particular to the Sulu archipelago, certain regions and cities of Mindanao and the southern Sulu Sea area. In an update on Wednesday of a travel warning it issued Nov. 20, 2014, the State Department said US citizens should continue to defer non-essential travel to the Sulu archipelago due to the high threat of kidnapping of international travelers and violence linked to insurgency and terrorism there. …

  • Phl gains support for APEC Action Agenda
    Phl gains support for APEC Action Agenda

    The Philippine initiative to put the interests of micro, small and medium enterprises (MSMEs) front and center in global and regional trade has made significant progress following the conclusion on Thursday of the 2nd APEC Senior Officials’ Meeting (SOM2) and Related Meetings in Boracay, Aklan. Called “The Boracay Action Agenda to Globalize MSMEs,” the Philippine proposal calls for a host of specific, concrete and practical interventions that APEC economies can implement to provide MSMEs wider …

  • Phl to join Bangkok meet on Rohingya crisis next week
    Phl to join Bangkok meet on Rohingya crisis next week

    The Philippines will join a 15-nation meeting in Bangkok, Thailand next week to address the migration crisis involving thousands of Rohingyas who escaped persecution in Myanmar and Bangladesh. Justice Secretary Leila de Lima bared this yesterday after meeting with United Nations High Commission for Refugees (UNHCR) representative to the Philippines Bernard Kerblat. In an interview, De Lima said the Philippine government has been invited to the meeting. …

  • Magnitude 4.2 quake jolts Sorsogon
    Magnitude 4.2 quake jolts Sorsogon

    LEGAZPI CITY—A magnitude 4.2 earthquake hit Prieto Diaz town in Sorsogon before dawn yesterday, the Philippine Institute of Volcanology and Seismology (Phivolcs) said. …

  • Drought-resistant rice breeds bared
    Drought-resistant rice breeds bared

    SCIENCE CITY OF MUÑOZ, Nueva Ecija – Amid the searing heat, the Philippine Rice Research Institute central experiment station here has identified nine rice breeds which have been proven to be drought-resistant and produce high yields in temperatures as high as 38°C based on a recent study. Thelma Padolina, lead researcher of the study titled “Screening of rice-induced mutants for heat and drought tolerance,” identified the breeding lines as the Ballatinaw lines, PSB Rc72H and Azucena lines. …

  • Phl, US assert rights, ignore China warning
    Phl, US assert rights, ignore China warning

    The United States military will continue air and sea patrols in international waters even after the Chinese navy repeatedly warned a US surveillance plane to leave the airspace over artificial islands China is creating in the disputed South China Sea. The Philippine government also declared it would continue activities in the region, calling on China to respect freedom of navigation and aviation. “Our position on the importance of letting freedom of navigation, freedom of aviation and …

  • MM shutdown eyed for quake drill; 6 schools warned
    MM shutdown eyed for quake drill; 6 schools warned

    Electricity and mobile phone services would be cut throughout Metro Manila, and all private and government offices and businesses, including shopping malls, would be closed. That would be the situation on July 16 between 3 and 8 p.m. to simulate the scenario of a 7.2 magnitude earthquake. The Philippine Institute of Volcanology and Seismology (Phivolcs) has warned that an earthquake of that magnitude could occur and kill at least 33,500 people and injure at least 113,600 others following a …

  • Subaru XV now priced among sedans
    Subaru XV now priced among sedans

    Motor Image Philipinas (MIP), the authorized distributor of Subaru in the country, has positioned its brand new crossover SUV, the Subaru XV, well within the sedan segment’s price range. This move, according to MIP, was made to give the public an opportunity to experience the brand’s unique automotive technologies by lowering its price. Buyers of […] The post Subaru XV now priced among sedans appeared first on Carmudi Philippines. …


Should Aquino be held accountable over the Mamasapano operations?

Poll Choice Options