Many of us buy health or life insurance to give ourselves a safety net in case the unfortunate happens. However, when it comes to protecting one of our biggest assets – our home – we often neglect the fact that one day we may not be able to make our home payments. To avoid defaulting on your home and risk losing it, you should not only plan for the home's down payment and monthly repayments, but you should also take into consideration mortgage insurance as part of your financial planning. While taking a mortgage plan is not compulsory, there are some good reasons to consider one depending on your circumstances.
What is Mortgage Insurance?
Mortgage insurance protects the owners or occupiers of the property against losing their home despite the occurrence of a catastrophic event. For instance, if the mortgagee meets with an accident and becomes permanently disabled, he and his family members may face difficulty in servicing the mortgage repayments on top of other healthcare costs. This is where a mortgage insurance can help with the assurance that they will not lose the roof over their heads.
Mortgage insurance or Mortgage Reducing Term Assurance (MRTA) is not fire or home contents insurance. These plans cover damages done to your home and its contents and do not protect against the need to repay your monthly mortgage.
Mortgage Insurance in Singapore: MRTA vs. HPS
There are 2 main types of mortgage insurance in Singapore: the Home Protection Scheme (HPS) and the Mortgage Reducing Term Assurance (MRTA). The HPS is a mandatory mortgage insurance plan for HDB flat owners and who use their CPF savings to service their monthly repayments.
For those who have bought a private property, including executive condominiums, you can choose to get yourself insured with an MRTA. As you pay off your mortgage, the sum insured decreases accordingly. Because of this policy structure, some people may feel that it's not worthwhile to take up a policy. Due to this, insurers have responded by waiving premiums for the last few years the policy is in force. There are also other plans that assure a full refund of your premium if no claims were made during the policy term.
1. You Have Dependents
If you are the main mortgagee and have a family living with you, taking up an MRTA is a smart choice because it will help ensure that your family will not lose their home if something unfortunate happens to you. Upon your death or permanent disability, the MRTA will pay the sum assured (an amount equivalent or close to your outstanding home loan) to the beneficiary. This can be beneficial for several reasons. This is less stressful than the other alternative, which is to sell your home and downgrade to a more affordable flat. Since property is illiquid, it can take months for someone to purchase your property and there is always a risk that your family may not be able to sell the flat at a profit. Furthermore, your family will be struggling financially as they wait for a buyer.
2. You Plan to Sell Your Property in the Future
Under the HPS, the policy is terminated when you sell off your property. This means that you'll have to apply for a new plan when you purchase your new home. Unless you are purchasing and selling your home within a couple of years, this means you'll be subjected to age and health -related premium increases.
However, an MRTA allows you to transfer the remaining coverage to a new property. It will also give you an option to top up coverage if you upgraded to a more expensive flat and had to take out additional loans.
3. You Co-Own Your Property
MRTA lets you purchase a plan as an individual or jointly with your partner. Since it is common for properties to be financed by partners due to the high real estate costs, MRTAs that offer dual or joint coverage may be useful for a number of reasons. First, when one of the parties dies or becomes disabled, the outstanding sum assured will be disbursed to the remaining partner, alleviating them from the financial burden of bearing the costs alone. Second, it may be cheaper than purchasing two separate policies individually, as you pay one premium for both people.
Identifying Your Mortgage Protection Needs
There are a variety of MRTA products, with some plans providing full premium refunds if no claims were made, and others that enhance your coverage with critical illness, and premium waiver riders. To really know whether or not an MRTA is the right option for you, you should ask yourself whether you or your family will be able to afford your mortgage payments during a crisis. To see the plans that are available to you, you can check out our guide to the best mortgage insurance plans currently on the market.