Mortgage insurance 101

Not many people realize the importance of mortgage insurance, but this product could keep you and your loved ones in your home should unforeseen circumstances occur.

By Praise Poh

Owning a property in Singapore is a rather expensive experience, yet surprisingly, most homeowners do not see the benefits of having mortgage insurance. In fact, it is one of the most overlooked and underrated insurance products. So, what exactly is mortgage insurance and is it really necessary for property owners?

In a nutshell, mortgage insurance acts as a form of protection for you and your loved ones. Similar to life insurance, in the event that you are unable to repay your mortgage payments due to any permanent disabilities or death, your mortgage insurance will take care of the outstanding loan, so that your family can continue to stay in the same property without having to worry about the repayment.

Therefore, unless you are Warren Buffett or Bill Gate, having mortgage insurance will definitely be useful and beneficial for your family should any misfortunate fall on you, especially if you are the sole or major breadwinner.

HPS vs MRTA

If you own a HDB flat and are using savings in your CPF account to pay the monthly instalments, it is compulsory for you to be insured under the Home Protection Scheme (HPS). However, if you are paying your monthly loan in cash, you are not required to purchase HPS though you can still opt to be covered under it.

Administered by the CPF Board, this is a mortgage reducing insurance scheme which means the sum assured will decrease progressively to nil at the end of the term. HPS covers the insured up to 65-years-old or until the housing loan is paid up, whichever is earlier.

Executive condominiums (ECs), however, cannot be insured under the HPS, as they are not considered public housing. Housing and Urban Development Company (HUDC) flats, on the other hand, are eligible, and as long as the owners remain the same and they do not switch financial institutions to finance the loan, the property can still be covered under the HPS even if it becomes privatised in later years.

Mortgage insurance for private properties is usually termed Mortgage Reduced Term Assurance (MRTA) and is readily offered by various private financial institutions and insurance companies. It is pretty similar to HPS except that it is transferable and will continue to protect the insured even if they upgrade to a new property, while the HPS will be terminated when the insured sell off their HDB flat or redeem their loan earlier. And buying a new HPS may be more expensive at your prevailing age and is subjected to underwriting.

While HPS is compulsory for HDB owners who service their housing loan with CPF savings, they can also choose to opt for MRTA instead. Though it is not a legal requirement for private property owners to get mortgage insurance, it is still highly recommended that they consider buying one. Private properties are so much more expensive than public housing, hence, imagine the amount of money your family will have to fork out for the repayment should you be unable to finance the loan under any circumstance.

MRTA policies are usually packed with lots of other coverage options and supplementary benefits, such as protection against total and permanent disabilities and critical illnesses, and medical reimbursement. Do your calculation and homework first before adding these riders, and if the premiums are still much lower than getting a similar general insurance, then why not?

In addition, they also tend to provide the insured with a much longer coverage term of up to 99-years-old, and have more competitive premiums and payment mode options (monthly, quarterly, half-annual or annual) as compared to HPS which is fixed at one standard rate by the CPF Board.

In the most unfortunate event that you are unable to continue financing your housing loan, if you are insured under HPS, CPF will liaise directly with HDB or the approved mortgagee to settle the outstanding loan up to the insured sum. If you opt for MRTA instead, the insured sum will be given to an appointed beneficiary, giving your family full flexibility on how best to make use of the cash during the crisis. For example, they can choose to use the money to pay for other emergency expenses instead of paying the housing loan lump sum.

Having said that, it is important to note that for MRTA policies, you can only use cash to service the premiums while the premiums can be paid with either CPF savings or cash for HPS.

Hence, HPS might be more suitable for families that are cash-strapped but have enough savings in their CPF accounts. For the rest of us, spend some time to shop around, and compare the different MRTA policies’ premiums and coverages offered by the various financial companies will not only ensure you a peace of mind, but also help you to accumulate considerable savings.

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