After buying a home worth several hundred thousand dollars, spending on something “extra” like Mortgage Reduced Term Assurance (MRTA) seems unnecessary. But if you lose your job because of disability, illness or retrenchment, how will you be able to make your home loan repayments?
That’s why mortgage insurance is so important, because it provides you with a lump sum payout (based on the amortization of your home loan) in the event you lose your income. MRTA is mainly for owners of condos and landed properties because HDB owners already have the compulsory Home Protection Scheme (HPS) – but even HDB owners have the option to purchase this policy.
Here are several reasons why you need mortgage insurance:
Because Property Is Illiquid
If you lose your income, it’s a terrible idea to think that you’ll just sell your home to cover the outstanding loan. That’s because property is illiquid – meaning you’ll need to advertise, conduct viewings, and negotiate a sale price for your home.
Conducting a “fire sale” of your home is expensive, time consuming, and usually results in you selling at a loss. Not only that, you also need to consider issue of finding a new home. But if you have mortgage insurance, you’ll have the financial breathing room you need to get back on your feet.
Because Premiums End before the Loan’s Tenure
Many homeowners worry about MRTA because they’re worried it’s not worth the premiums, especially towards the end of the policy’s term. But insurers have solved this worry by making you only pay premiums for 75% of your home loan – meaning that if you take 30-year loan, you’ll only need to pay premiums for only 22 years.
Because the Premiums are Low
Compared to other types of policies, mortgage insurance has relatively low premiums because it has a very specific purpose and isn’t as comprehensive as a life insurance policy. But like any policy, if you add additional riders for increased coverage, your premiums will rise too.
And because the premiums end before the loan’s tenure, you’ll get to enjoy many free years of MRTA coverage.
Because the Policy Can Be Transferred
Another great benefit about mortgage insurance is that the policy can be transferred if you decide to sell your current property to purchase another. Also, if you have repaid your first property and purchase a second one as an investment to rent out, you can transfer the remainder of your MRTA to that second property.
Because Coverage Is Adjustable
A normal MRTA policy offers sufficient protection against the loss of income. But if you’d like more extensive coverage, you can add riders such as medical reimbursement, weekly indemnities, and payout for debilitating injuries too.
Before you pay for any extra riders, be sure to check how it compares to the cost of General Insurance (GI) first, otherwise you might end up paying more than you should.