MRTA: The Difference Between Keeping or Losing A Home

Do you know that a mortgage loan is the largest household debt for Singaporeans, taking up an overwhelming 76.27 per cent of our household debt?¹ With typical loan tenures of 25 years, Singaporeans are likely to be servicing their mortgage until around the age of 50.² Therefore, with our house as our largest liability, it is important that we understand the need for precautions. This translates to protection for our mortgage loans in the event of unforeseen circumstances.

What is a MRTA?

MRTA stands for Mortgage Reducing Term Assurance, otherwise known as insurance for your housing loan. Offered as an affordable option for coverage, it protects home owners in the event of death or total permanent disability (TPD). As you repay and reduce your outstanding mortgage loans, the sum that you are assured for would also gradually reduce over time. This explains the concept of this term, where the reducing term assurance allows your premiums to be more affordable. By covering the outstanding loan amount, it allows you to have a peace of mind knowing that your dependents will not be financially burdened with your remaining mortgage loans.

As explained in our previous article, "Home Protection Scheme (HPS): Insurance for HDB Owners", HPS provides insurance for your mortgage loan. This is a compulsory scheme for all HDB owners who are using CPF monies to finance their monthly loan payments.

(See "Home Loan Protection: MRTA or Term Life Insurance")

#1 Better Control

MRTA which is essentially a term plan, allows you to have flexibility of choosing your desired coverage amount and the time period. Importantly, the term coverage will start to decrease correspondingly to the remaining loan period. This feature thus enables the premiums for a MRTA to be more affordable than level term coverage.

Upon the death or total permanent disability (TPD) of the insured, MRTA will provide dependents with a single lump sum pay out. This could help pay off your remaining mortgage and other financial liabilities such as immediate expenses. This is unlike the Home Protection Scheme (HPS) where your pay outs can only be used for mortgage repayments.

Additionally, if you are looking to upgrade your house or considering a second property, a MRTA may be more ideal. As MRTAs are tied to the policy owner, coverage only terminates at the end of the policy term. This allows you to continue your MRTA coverage for your new house. This may appeal to Singaporeans who intend to move from HDBs to private housing in the future. Alternatively, if you have repaid the mortgage of your first property, you could use the remaining policy term of your MRTA for your second property.

(See "5 Unbelievable Properties You Can (Almost...) Afford With Your HDB")

#2 More Flexibility

With a wide array of plans available, home owners are able to choose a plan that can cater to their needs. This allows the MRTA to be a more flexible plan as compared to the Home Protection Scheme (HPS) offered for HDB flats.

Moreover, MRTA allows you the choice of only getting protected for what you require. This means that you have the flexibility of only opting for 50 per cent coverage should you have other policies that could cover your remaining shortfall. Unlike the HPS where a fixed 100 per cent coverage is required, the MRTA ensures that you only pay for what you need and avoid paying excess for coverage that you do not require.

Also, MRTA offers flexibility with their payments thus allowing you to choose your preferred payment method. Various premium payments options are also available to suit all needs be it a one-off payment or recurring payment.

(See "Mortgage Reducing Term Assurance (MRTA): The Home Protection Scheme (HPS) Exemption")

#3 Comprehensive Coverage

Providing the insured with the choice of add-on riders, MRTA allows for more comprehensive coverage. While HPS only covers in the event of Death or TPD, MRTA gives you the option of adding riders such as critical illness or premium waiver. This allows you a peace of mind knowing that your home is secured and your family taken care of should you meet with any unfortunate events.

Moreover, MRTA gives you the choice of starting your coverage from the date of your loan approval. This allows for an earlier commencement which will ensure that you are protected throughout. Also permitting joint coverage, both you and your spouse can be protected should anything happen to either of you.

(See "Are Financial Disasters Your Thing? Here's 4 Mistakes You Must Avoid")

How FSMOne can help you get on track

Our team of friendly advisers are able to help you review your financial objectives, long term commitments, and offer you investment and insurance advice specific to your needs. If you would like assistance in reviewing your financial and protection portfolio, or simply to get a quote for an insurance plan, you can contact our advisers at advisory@fundsupermart.com.

^{1Source: http://www.tablebuilder.singstat.gov.sg/publicfacing/createDataTable.action?refId=1952}

^{2Source: http://www.todayonline.com/singapore/hdb-shortens-homebuyers-loan-tenure-25-years}

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