What Is The Important For Mortgage Insurance !!!!!
Objective Of Buying A Mortgage Insurance
For starters, let’s explain first what Mortgage Assurance is.
Mortgage Assurance is a type of insurance that will cover your outstanding property loan if you are unable to do so in the event of death or total permanent disability.
Without this, the provider of the insurance, also known as the lender, will repossess your property and auction it off if your family fails to repay the remaining balance on the loan.
Mortgage life insurance is aimed at providing security to your loved ones from being burdened by home loan repayments if you pass away or are afflicted by TPD (Total Permanent Disability) . However, if you do not have anyone to leave your property to and money is tight, getting a mortgage life insurance may not be your highest priority. For those with dependents however, it’s worth considering. Otherwise , you are investor would involve in regular purchase and disposal transaction .
What do you stand to lose if you do not have a MRTA or MLTA? If you are planning to pay off your mortgage within a few years, then an MRTA or MLTA may not be on the top of your list unless you are property investor. However, if you are planning to service it for the next 30 to 35 years, and especially if you are co-buying with someone else, it will be best if you are protected.
For example 1, if you are purchasing a property with your spouse, and each will be paying 50% of the repayment every month, a death or permanent loss of income may be a huge blow on the couple’s finances. Having a mortgage life insurance will provide you the peace of mind that you will not lose your property even if the other person is unable to pay for the mortgage.
Why MLTA Is Better Than MRTA – A Comparison
While Bank Negara Malaysia (BNM) doesn’t require mortgage insurance, many financial institutions are unlikely to lend to a home buyer if he doesn’t subscribe to a policy. A bank may even offer a slightly lower interest if they do. However, BNM allows borrowers to take-up a mortgage insurance being sold by other companies not just the one offered by the lender providing the housing loan.
In Malaysia, there are two types of insurance offered for housing loans – Mortgage Level Term Assurance (MLTA) and Mortgage Reducing Term Assurance (MRTA). Each comes with different perks and disadvantages.
Difference Between MRTA And MLTA
Which Is More Expensive?
The insurance premiums for MRTA or MLTA depends on your age, the insured loan amount and how long the mortgage will be repaid. Basically, you will be paying a higher premium if you are older, insuring a greater loan quantum and will be repaying the loan for a longer time. In addition, you need to undergo a medical check-up to qualify for either. If a serious illness is discovered, the insurance provider might reject you or raise the premium.
But basically, MRTA is about slightly cheaper than MLTA. For instance, if a 28-year old Malaysian took out a RM450,000 housing loan with a tenure of 35 years and interest rate of 4.55 percent for a property costing RM500,000, he only needs to fork out a one-time payment of RM21,695.50 to secure an MRTA insurance policy. There is also lower cash outlay on your part as MRTA can be bundled together with your mortgage. Customer will pay more than premium due to compounding interest . Normally is 2 times of premium financied based on 30 or 35 years tenures which is estimated equal to RM 42,000.
On the other hand, if you acquire an 10 years payment term MLTA insurance policy, you need to pay insurance premiums of RM 333.33 per month or RM4,000.00 per annum. Over the 35-year tenure of the mortgage, the premiums will total RM40,000.
Conclusion , if the MRTA is financed into loan , the total premium paid is almost or slightly different. But MLTA is more benefit to House -Owner and comparable .
Which Offers Greater Protection?
-Outcome Between Reducing Cover & Level Cover Protection
MLTA offers greater protection as the amount insured remains the same throughout the life of the loan. In comparison, the amount insured under MRTA declines each year and will reach zero at the end of 30 years. Moreover, only the lender will be entitled to the insurance payout under MRTA, while you can nominate anyone to be the beneficiary under an MLTA insurance policy.
For example, if the borrower suddenly dies or suffers total permanent disability after 15 years of paying a portion of the RM450,000 housing loan, the bank will receive RM311,300 from the insurance provider to pay off the loan if the borrower subscribed to an MRTA policy.
Given that the insured amount under MRTA falls every year, it’s possible that insurance payout may be insufficient to cover the remaining loan balance, particularly if interest rates increase or the insured period ends earlier . This means your family may still need to fork out cash to fully repay the mortgage, otherwise they’ll lose their home or house being auction if they is unable to pay off the remaining balance.
But if you took out an MLTA insurance, your family will always receive RM450,000 from the insurance provider to pay off the remaining balance of the housing loan. Assuming RM311,300 has already been paid before the unfortunate incident happened, your family will get a windfall of RM138,700 from the insurance payout.
-More Benefits And Values To Nominee
Means, If you purchase MRTA , your family will get a house with fully paid off by MRTA ( MRTA provided is full 35 years term). Otherwise, MLTA is better because your family will get a house and cash RM138,700 based on scenario above.
MLTA Is More Flexible Compare To MRTA (Transferable To Next Property)
MLTA is more preferable for short term or long term compare to MRTA . This is because it’s transferable the insurance just in case you sell your house or refinance. Eg: You purchase new property or refinancing your house , you have to buy the new MRTA based on the age .So borrower will pay higher premium as the age increase . Otherwise MLTA is better because MLTA is transferable to new property or refinance house . It is mean Borrower save the insurance cost for second times purhcase or refinance. That is the reason MLTA is a ideal plan for all borrowers.
Nomination Is Protected By S.166 Of The Insurance Act 1996 & Benefit For Nomination
Little do you know, that a MRTA policy may not protect both your assets as well as your family? This is because the beneficiary for an MRTA policy is the bank. In the case of any misfortune, the bank will get the outstanding balance of your mortgage loan from the insurance company.
“So how?, My family still ok , pay a little bit more only but if I die they get the house, the bank gets the money! Right..?”.
So what happens? The bank will get the remainder of what you owe, saving themselves. On the other hand, your house will be frozen under the estate, your assets will be utilized to pay for your other outstanding liabilities, the clearing of your outstanding taxes (including those you didn’t clear over the years), to settle the legal and accounting expenses involved. In this process,if your asset is more than your liabilities, then your family will receive the difference. So, “What if my liabilities more than my assets ?”. Your estate will be declared as bankrupt or insolvent, and your family is now forced to walk away from the house you wanted to buy for them, even though the insurance proceeds for that ‘one-time payment, hassle-free mortgage assurance’ has been paid out. Unfair ?
In a nutshell, the bank MRTA is to protect themselves. You and your family are also being protected, don’t get me wrong! Protected only if your assets are more than your liabilities.
So what’s the better choice? A personal MLTA – Mortgage Level Term Assurance.
The purchase of a MLTA is different from that of a MRTA. It is definitely a little bit expensive, but can be divided into monthly or yearly payments. With a personal MLTA, the beneficiary is your family. So if anything happens right, your family will get the insurance money, all of it. The best part is, the insurance proceeds paid out to your family is protected under s.166(2) of the Insurance Act of Malaysia 1996.
“(2) Notwithstanding any written law to the contrary, a payment under subsection (1) shall not form part of the estate of the deceased policy owner or be subject to his debts.”
What does this section 166(2) mean? It means that the money, will be paid directly to your nominees provided the nominations are done right and it’s a trust policy. I’ll make a separate post on nominations and will-writing later. Your house will still be frozen, and subject to the same estate execution. If you have more assets than your liabilities, then your family is able to get something, .else they get peanuts, but in this case they already got the insurance money and bank cannot come and disturb them. Can use the money to buy a new house.
Cash Value For Early Settlement
The best thing is, your MLTA has cash value, as opposed to a MRTA which has next to nothing of value. This can possibly help you pay off your loan earlier! (debt cancellation, I’ll make a post on that later as well) The next best thing is that if you already settled your loan without using the cash value inside the MLTA, you can make a partial withdrawal to settle down-payment for another house, then transfer the MLTA to your other new mortgage loan.
After saying all that, we’re left with a choice. I would personally CHOOSE MLTA any time of the day based on the above, but what about you?
What is your choice? If you’ve made a choice to choose a MLTA over an MRTA, tell your bank officer you already have a MLTA policy. You can contact us if you’re interested in getting a MLTA for yourself instead of a MRTA with the form below and we’ll try to work something out for you.
Above is for reference.
Kindly contact us Mortgage Consultants for more detail .
Tel: 016-4726015 Email: Juntanttc@Mpgmortgage.com