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 also include mortgage insurance as part of your financial planning. While taking out a mortgage insurance plan is not compulsory, here are some good reasons to consider one depending on your circumstances.
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What is Mortgage Insurance?
Mortgage insurance protects the owners or occupiers of the property against losing their home in the event 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 assure that the family will not lose the roof over their heads.
Understanding Mortgage Insurance in Singapore: HPS vs. MRTA
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 who use their CPF savings to service their monthly repayments. The MRTA on the other hand is a non-compulsory privately issued mortgage insurance that you an opt into.
Both the HPS and the MRTA are mortgage reducing insurance plans that work in similar ways to protect you and your loved ones from losing your home under devastating circumstances . Both policies provide coverage for the outstanding amount on the mortgage. In the instance of death or total permanent disability, both the HPS and the MRTA will pay out the sum insured so that your family would not have to worry about keeping up with mortgage payments in order to not lose their home.
The key difference between these two types of mortgage insurance is that the HPS policy is tied to the HDB flat and the MRTA policy is tied to the policyholder. If you purchase a new HDB flat, you will need to apply for a new HPS policy. If you bought a private property, including executive condominiums, you can choose if you would like to be insured with an MRTA. With both types of mortgage insurance, as you pay off your mortgage, the sum insured decreases accordingly.
One important thing to note is that mortgage insurance is not fire insurance or home contents insurance. The latter are plans that cover damages done to your home and its contents and do not protect against the need to repay your monthly mortgage.
When Would You Need A Mortgage Insurance Plan?
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 may 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 the option to top up your coverage if you upgrade to a more expensive flat and have 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, if 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.
Identify 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.
- 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
- Can’t Afford Your Mortgage Payments? Here Are 4 Things You Can Do
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