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Mortgage Insurance

Mortgage Insurance is a type of insurance protection that covers your outstanding property loan

if you are unable to do so in the event of death, total permanent disability or critical illness.

Why should we buy Mortgage Insurance?

There are 2 main reasons why you acquire a property

Investment
Own residence

Regardless of any reasons above, the objective is to have a better living lifestyle.

Most people will get a loan (mortgage loan) to purchase a property & repay the loan for about 20-30 years or so. Anything can happen within this period of time. If something tragic (Death/Disabled/Critical Illness) happens to the you, this Mortgage Insurance can pay off the outstanding balance mortgage loan.

So that you or your family can enjoy the better living lifestyle which you have planned earlier

What happens if without Mortgage Insurance?

If something tragic happens to you and there's no Mortgage Insurance in place...

For Investors:

The lender (most of the time is banks) will repossess your property and auction it off if you or your family fails to repay the loan balance.

Your investment goal will turn sour. You will lose all the legal fees, renovation cost, MOT, etc.

For Own Stay:

You or your family will lose the only shelter to stay & become homeless. This is more crucial than property investment.

Of course, you will still lose all the legal fees, renovation cost, MOT, etc.

Which is Better?

In Malaysia, we can summarize all the Mortgage Insurance to 2 types

MRTA (Mortgage Reducing Term Assurance)
MLTA (Mortgage Level Term Assurance)

Before we focus on which is better for you, let's take a look at the fundamentals of each below.

MRTA

A single-premium life insurance plan with a decreasing sum assured over time, used to pay outstanding mortgage loan directly to the bank, in the event of death or sometimes extends to total permanent disability.

MLTA

Similar to MRTA, except that it has a constant sum assured over the loan tenure, and the pay-out is to your nominee instead of directly to the bank.

Which one to choose?

For Own Stay

If you decided to purchase just 1 property in your lifetime & the objective is for own residence, then MRTA probably would be the better option for you.

MRTA not only can pay the remaining balance to the bank, but also low premium due to no cash value.

MRTA also can be included into your mortgage loan where you can repay the single premium by installment.

If you are low on budget, this is another reason which you want to look into MRTA

MRTA usually pays out directly to the bank. However, the coverage follows the interest rate at the point of inception. If the rate increases, then it may not fully cover the balance which increases too.

MRTA is not flexible as it is calculated based on the loan interest rate and the loan tenure at the point of inception, of course apart from your age, gender, smoking status, occupation.

At the end of the tenure, there's no cash value & the MRTA is expired. If you wish to take up another loan, you will have to purchase another insurance again based on the current age & health conditions, which usually is more expensive than the MRTA.

For Investment

If you decided to invest into property, MLTA most likely will be the better choice for you.

MLTA is not tied up to any specific mortgage loan. This means the MLTA can be transferred to cover any property loan balance.

Let me give you an example.

You have a MLTA to cover your current property loan. After 8 years, you decided to sell off this property & get another one with a loan. Your MLTA continues to cover your new loan balance without cancelling the policy & purchase a new one.

With this action, your are enjoying the premium rate at the age & health condition when you first purchase the insurance plan.

MLTA usually pays out to family member. The question now is, will the nominee of the policy settle the bank loan balance first?

How can we ensure the MLTA proceeds settle off the loan balance before anything else? We'll talk this in another topic.

MLTA premium is expected to pay for the entire tenure & cannot be included into the mortgage loan. If you are low on budget or tight cash flow, MLTA might not be a good choice for you.

For Loan & Legacy

If you want to have cash value (to settle the loan earlier or some legacy for family), and at the same time covers your mortgage loan, MLTA may be the best option for you.

FYI, unlike MRTA, MLTA is not a product but merely a solution. Similar to car & motor vehicle. There's no specific product called MLTA but people made that up to sell you a life insurance plan.

You can use any life insurance product eg. Investment-linked Plan, Term Insurance, Whole Life Insurance etc. to become a MLTA solution. However, you need to know which insurance product can be fit into your MLTA solution because not all comes with cash value.

The proceeds from the insurance plan pays to settle the mortgage loan, the balance can be used as family expenses. This is because the mortgage loan will decrease gradually over the years.

If nothing happens over the years & you have decided not to purchase anymore property, you may surrender the policy & cash out for own use.

Alternatively, retain the policy & leave your family as a legacy.

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