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Mortgage Insurance Singapore Guide: Protect Your Home and Your Wallet
We all love it when things go according to plan—your dream house bought, your mortgage all set up, your cashflow stable and predictable for the foreseeable future. Then you get a call saying your partner has passed away in an accident... and all your careful financial arrangements come crashing down, replaced with the fear of foreclosure and financial ruin.
With mortgage insurance, this scenario doesn't have to happen to you. In this article, we'll share with you all the benefits of mortgage insurance, and show you how getting it for your home could turn out to be a lifesaver in time to come.
What is Mortgage Insurance?
Mortgage insurance is a type of insurance that protects beneficiaries (typically family members) against financial loss or distress in the event that the policy holder suffers death or permanent disability while his/her mortgage still has outstanding payments.
Mortgage insurance pays a certain amount of money, depending on the coverage of the plan, to help dependants cover mortgage payments partially or completely, to alleviate the potential financial crisis that a permanent loss of income may cause.
In Singapore, a mortgage insurance plan comes in two forms:
Home Protection Scheme (HPS)
The Home Protection Scheme (HPS) is the equivalent of a mortgage insurance for HDB flats. The arrangement with the HPS is, if the mortgage borrower passes away or becomes permanently disabled before 65 years old, the remaining balance of the home loan will be paid by the Central Provident Fund (CPF) board.
Homebuyers and owners of HDB flats who use their CPF savings to pay for the mortgage are automatically signed up for the HPS. Otherwise, you have the choice to either manually apply for the HPS or search for your own mortgage insurance policy provider. Do note that for executive condominiums, the HPS is not mandatory.
Mortgage Reducing Term Assurance (MRTA)
The Mortgage Reducing Term Assurance (MRTA) is basically the term for private mortgage insurance in Singapore. The MRTA pays for the sum of the borrower’s outstanding mortgage balance in the event of the borrower or co-borrower’s death or permanent disability. The MRTA is more commonly used by private property homeowners, but can also be for HDB flat owners who would like a mortgage plan other than the HPS.
How Mortgage Insurance Can ‘Save’ You
As mentioned, mortgage insurance helps pay for your home loan, and helps you keep your property in case of death or permanent disability. Here’s a more detailed explanation of how mortgage insurance may protect you and your loved ones in dire times:
If you pass away or get permanently disabled
If you are the borrower, mortgage insurance can protect your family from paying for the loan in case you pass away. Having mortgage insurance may help your loved ones keep the home if no one else can pay for it. In the case of permanent disability, it may save you from the burden of paying for monthly repayments after permanent loss of income.
If your co-borrower suddenly dies
In case you have a co-borrower and this person dies, and the remaining borrowers are looking to refinance, the bank needs to assess whether you can handle the full mortgage repayments based on your Total Debt Servicing Ratio (TDSR) and income.
The good thing is, if you have a joint mortgage insurance that covers this, the provider will give you a certain amount because of the co-borrower’s death. You can use this to pay for the remaining home loan in full, or other things, depending on you. Otherwise, if you have an HPS, the proceeds will go directly to HDB to pay off the balance of your home loan.
If your co-borrower suffers permanent disability
A disability may affect a person’s mobility, and also his/her capacity to work. This means that, if your co-borrower becomes permanently disabled, you may end up paying for the rest of the monthly repayments. Having mortgage insurance can save you from this financial burden as you will receive a lump sum of your mortgage balance in cash as soon as you declare that your co-borrower is now permanently disable.
HPS and MRTA: A Comparison
For many homebuyers in Singapore, you have a choice between HPS or MRTA, if you're getting a HDB flat but do not opt to pay your mortgage via CPF. We definitely recommend getting one to cover your mortgage and your loved ones—but which? Here's a quick comparison of the various features and options available for each mortgage insurance, to help you make a more informed choice.
Policy Options
HPS issues one policy per borrower. Therefore, if you’re purchasing an HDB flat together with a family member, you’ll have to pay for two separate HPS policies instead of a joint one. Meanwhile, the MRTA allows you to get a joint insurance plan with a co-borrower, which would come with savings from paying only one premium.
Payout Destination
If you're insured under the HPS, your insurance will go directly to the HDB, which means the money from the payout will be for the sole use of paying off your mortgage.
For MRTAs, which allow joint mortgage insurance plans, you will have the added option of having the cash proceeds from the policy being paid to your policy's co-holder in the event of disaster. This may provide more flexibility in how the money is used by your beneficiary, in case the insured sum is needed along the way for other purposes besides paying for the mortgage.
Transfer of Mortgage Insurance to A New Property
Usually, the MRTA can be transferred to a new property in case you want to upgrade to a new home or sell your current one, regardless if it’s an HDB flat or a private property. Although there are considerations such as remaining period of coverage, sum assured and the interest rate differential. On the other hand, the HPS will be terminated once you’ve repaid for the loan in full, or upon the sale of your home.
Refunds
Some private mortgage insurance providers allow you to apply for a refund or a premium discount if you haven’t made any claims by the time your policy ends. The HPS does not permit refunds, as it is terminated upon loan repayment or sale of home, and some other insurance providers may also not permit it.
Flexibility in Payments
With the MRTA, you have the option to pay for your premiums in cash or using a credit card. HPS automatically deducts the premiums from your CPF OA.
Should You Get Mortgage Insurance?
Again, HDB homeowners who pay for CPF are automatically signed up for mortgage insurance in the form of the HPS. And while the HPS is mandatory for those who are using their CPF savings for their monthly mortgage repayments, you may apply to be exempted to get an HPS if you already have at least one of the following:
Endowment policy
Life riders attached to a basic policy
Mortgage reducing term insurance (MRTA) or a decreasing term rider
Term life insurance
Whole life insurance
Meanwhile, private property and executive condominium owners are not required to get a mortgage insurance. Many undoubtedly choose to save the cost, but answering the following questions may help you decide if getting a mortgage insurance would actually be worth it for you or not:
Is the Specific Property Crucial To Your Family?
If your family lives in the property, and they don’t have any other property to transfer to in case of foreclosure, then it would be best to get mortgage insurance. This way, you can rest assured that your family would still have a home in case you (or your co-borrower, if any) passes away or gets permanently disabled, and are unable to pay for your monthly repayments.
Are You Planning to Move?
If you are looking at moving to an HDB flat or a private property, whether you’ll sell your current home or you just want an upgrade, then getting an MRTA could be a good call. As mentioned, MRTA allows you to transfer your remaining insurance coverage to a new property which means you don’t have to pay for a new mortgage insurance for your new home. It’s good to note though that your premium may increase, depending on the lump sum assured on the plan.
Are You at Risk of Not Being Able to Make Payments?
If you don’t have enough savings and losing a co-borrower or getting disabled and losing your job may increase your risk of not being able to pay for your mortgage on a monthly basis, then getting a mortgage insurance policy would be ideal.
Is Someone Else Going to Get the Property If Anything Happens to You?
It would be beneficial to get mortgage insurance if you have a co-borrower or a family member who may receive it in the event you pass away. With MRTA, the receiver may not only use it to repay the home loan, they may also use it for something they immediately need (i.e., to tide over immediate living costs due to loss of income, for the education of your children, etc.)
More FAQs on Mortgage Insurance in Singapore
Is Mortgage Insurance Compulsory in Singapore?
Mortgage insurance is not compulsory for private properties (condos, landed houses) and executive condominiums (EC) in Singapore. However, if you buy a HDB flat and use your CPF to finance it, yes, it is mandatory.
Which Mortgage Insurance Is the Best?
As with most financial products, there is no one-size-fits-all mortgage insurance. We recommend listing down the coverage benefits and assessing them based on your priorities. Many banks have tie-ups with insurers too, so after signing up for your mortgage, you may want to check with the bank for any promotions.
Is It Worth It to Buy Mortgage Insurance?
The answer is subjective, but if you want to protect your family and loved ones from unforeseen circumstances like death and disability, then mortgage insurance is definitely worth considering.
What Does Mortgage Insurance Cover?
Every plan is slightly different, but generally, mortgage insurance covers borrowers in the case of death, total permanent disability and/or other situations in which they cannot pay the mortgage.
At the end of the day, taking out a mortgage insurance policy may add slightly to your mortgage costs, but the security and potential benefits it offers could be worth it, especially when you’re already faced with the unwanted circumstance. Just look for a mortgage insurance plan that suits your needs, budget and requirements so you can get the most out of your premiums.
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