Understanding mortgage insurance: HPS vs MRTA vs Term Life

What is mortgage insurance?

Mortgage insurance is an insurance that covers your outstanding housing loan amount. In the event of a death or total permanent disability (TPD) of the home owner, his/her share of the mortgage will be paid off by this mortgage insurance. This allows the other home owner or their dependents to not be financially burdened with the remaining mortgage.

For instance, Mr Tan and Mrs Tan are co-owners to a 4-room HDB and have an outstanding home loan of $500,000. Both of them bought mortgage insurance to cover this outstanding home loan on an equal basis. In the event that Mr Tan passes on, his share of the housing loan (e.g. 50 per cent of $500,000 = $250,000) will be covered by this mortgage insurance. Mrs Tan will therefore only have to continue servicing her half of the housing loan (i.e. $250,000).

There are the three types of insurance that can be used for housing loan protection: HPS (Home Protection Scheme), MRTA (Mortgage Reducing Term Assurance), and Term Life.

#1 Home Protection Scheme (HPS)

The Home Protection Scheme (HPS) is an insurance for your housing loan. This protects home owners for death, terminal illness or total permanent disability (TPD) with pay-outs meant to cover any outstanding mortgage that you have.

A mortgage reducing insurance, HPS is mandatory if you are using your CPF to pay for your monthly housing loan instalments on your HDB flat. Under HPS, you will be covered up to age 65 or until your mortgage is paid up, whichever is earlier. Do note that HPS can only be paid with your CPF Ordinary Account (OA). The deduction of HPS premiums will have priority over your monthly mortgage payments. In the event that you have insufficient balance for the HPS premium deductions, you will be prompted to top up your CPF OA account.

When do you need HPS (Home Protection Scheme)?

A HPS is compulsory if you own a HDB or DBSS (Design, Build and Sell Scheme) flat and are using your CPF savings to pay for your mortgage. Your coverage will start once you are the legal owner of the flat, have made your health declaration, have paid for the first HPS premium and have completed the loan application. For HPS, you are only required to pay annual premiums for 90% of your HPS coverage period. For example, if you have a HPS coverage period of 10 years, you will only need to pay premiums for 9 years.

If you would like to opt out of HPS, you may do so if you have policies that can cover your outstanding housing loan up to the full term loan or until 65 years old, whichever earlier, in the event of death, terminal illness or TPD. However, a HPS is optional if you are using cash to pay for your monthly mortgage.

#2 Mortgage Reducing Term Assurance (MRTA)

MRTA, also known as Mortgage Reducing Term Assurance, is an insurance for your housing loan. This protects home owners in the event of death or TPD. MRTA offers affordable premiums with your coverage tied to the outstanding mortgage that you have. This means that as you repay and reduce your outstanding mortgage, your sum assured will also gradually reduce over time. This translates to premiums reducing over time thus making your premiums more affordable.

A MRTA plan is tagged to the policy-owner. This means that you may use any remaining coverage from an MRTA as mortgage insurance for your subsequent properties. Premiums for MRTA plans can be paid with cash only.

#3 Term Life insurance

Like HPS and MRTA, term plans covers for death, terminal illness and TPD. There are two types of term insurance plans available – Fixed term (also known as level term) or Renewable term.

Unlike HPS and MRTA, term plans do not have to terminate once your mortgage is fully paid up. While term plans with its affordable premiums are usually used for life insurance, they can also be used as insurance for your housing loan. As term plans are not tied to your mortgage, you do not have to wait until you purchase a property to get coverage. You may also use the same term plan as mortgage insurance for your subsequent properties.

(See "Fixed or Renewable – Which is the better term insurance?")

Coverage available for your mortgage

In our next article, we share the best coverage for mortgage insurance for four common scenarios.

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