Guide to Picking the Right Mortgage Insurance in Singapore

Purchasing a property is a significant financial commitment, often the largest one Singaporeans will make in their adulthood. Such a substantial investment typically consumes a large portion of savings and most would take out a housing loan to help with the financing. 

During the tenure of your housing loan, unexpected circumstances, especially unfortunate incidents such as an accident, can make it difficult to repay the loan in time. With how long a typical loan repayment schedule can be, sometimes more than a decade long, it can be worrying if you do not have a safety net. Having mortgage insurance can help to elevate this unnecessary stress. 

What is Mortgage Insurance?

In Singapore, mortgage insurance is typically a type of insurance policy designed to cover the outstanding mortgage balance in the event of the policyholder’s death, terminal illness, or total permanent disability.

With mortgage insurance, homeowners and their families are protected even if something unfortunate happens to the breadwinner. With the insurance payout, they can have peace of mind knowing that they will continue to have a roof over their heads in challenging times. 

Why is Mortgage Insurance Important?

The primary reason to not overlook mortgage insurance is its protective value. 

Given that buying a home is one of the largest investments you will make, many people dedicate considerable time and effort to creating an ideal living environment where they can relax and recharge after a long day’s work. In the event of an unexpected mishap, mortgage insurance offers crucial protection for homeowners and their families, alleviating financial burdens during challenging times. 

A lump sum payout from the insurance allows the family to continue servicing the loan without disruption, even if the breadwinner suffers from a terminal illness or permanent disability. This ensures that the house does not get repossessed by the bank due to an inability to keep up with loan repayments.

Types Of Mortgage Insurance Available In Singapore

In Singapore, there are primarily three types of mortgage insurance available: Home Protection Scheme (HPS), Mortgage Reducing Term Assurance (MRTA), and Level Term Assurance (LTA).

Home Protection Scheme (HPS)

HPS is a mandatory mortgage insurance scheme for homeowners with an HDB (Housing & Development Board) loan. It covers the outstanding loan amount in the event of death, terminal illness, or total permanent disability. 

HPS premiums are often paid through the Central Provident Fund (CPF) Ordinary Account. Should something happen to the homeowners, the insurance will pay out directly to HDB to cover the outstanding loan amount.

Mortgage Reducing Term Assurance (MRTA)

MRTA is designed to cover the outstanding mortgage balance, which decreases over time as the loan is repaid. It is more affordable than LTA as its coverage amount decreases in line with the outstanding loan.

In the event of a payout, the money is paid directly to finance the housing loan, covering the remaining costs of the mortgage. 

Level Term Assurance (LTA)

Unlike MRTA, the coverage amount remains constant throughout the LTA policy term, regardless of the remaining mortgage balance. LTA provides stable and consistent coverage, which can be beneficial if you want a fixed payout amount, but it is usually more expensive than MRTA.

Should an LTA policy be paid out, the nominated beneficiary will receive the money instead of directly to the mortgage lender. 

Choosing between HPS, MRTA, and LTA

Each of the three mortgage insurance options has unique benefits tailored to suit different needs. It’s important to note that HPS covers only HDB properties, while MRTA and LTA can be used for both HDB and private residential properties.

At first glance, HPS and MRTA might seem similar, but their key difference is that HPS plans are tied to the property but MRTA policies are tied to the policyholder. 

With MRTA, your existing plan continues even if you sell your property and buy a new one. However, with HPS, you must purchase a new HPS policy if you buy a new home. HPS is a straightforward and affordable choice for HDB homeowners, but some prefer MRTA for its flexibility. 

By holding an MRTA policy, you don’t have to get new mortgage insurance if you purchase a new home as the cover can be transferred. This means you won’t face higher premiums, which typically increase with age, and no medical underwriting, which helps to ensure your plan is free from any possible exclusions due to new health issues. 

However, the existing MRTA policy might not be enough to cover the entirety of the new housing loan as it is designed with a decreasing coverage amount over time to match your mortgage balance. When it gets transferred to the new property, the mortgage balance remains where your previous property was and could be insufficient. 

This is where LTA comes into play.

LTA maintains a constant coverage level throughout the policy term that you have chosen. 

Even as your mortgage is repaid, the coverage provided by LTA does not decrease. You can easily pick the term that best suits your needs, aligning your coverage with the housing loan that you took out. However, LTA generally costs more than MRTA and HPS because of its coverage. 

Conclusion

Choosing the right mortgage insurance depends on your specific circumstances and preferences. 

HPS is an affordable and common choice for HDB homeowners. For those with private properties, MRTA offers cost-effective coverage that reduces with your mortgage, and LTA provides steady coverage, offering peace of mind with a fixed payout. 

Before buying your mortgage insurance, be sure to assess your financial situation, loan type, and coverage needs to make an informed decision that best protects your home and family.

Ready to make a purchase? Check out our articles on mortgage insurance in the market today!

While you’re at it, be sure to protect your home with a home insurance plan too!

Read More:

• 3 Reasons Why You Might Need Mortgage Insurance
• Best Cheap Mortgage Insurance in Singapore
• Do You Really Need Mortgage Insurance?
• Pros and Cons of Paying Off Your Mortgage Early
• How to Handle Mortgage Stress

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