{"id":32178,"date":"2020-04-12T20:59:23","date_gmt":"2020-04-12T12:59:23","guid":{"rendered":"https:\/\/www.99.co\/blog\/singapore\/?p=32178"},"modified":"2022-06-13T17:24:55","modified_gmt":"2022-06-13T09:24:55","slug":"what-is-mortgage-insurance-why-important-need-mrta","status":"publish","type":"post","link":"https:\/\/www.99.co\/singapore\/insider\/what-is-mortgage-insurance-why-important-need-mrta\/","title":{"rendered":"What is mortgage insurance and do I really need it?"},"content":{"rendered":"
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Now’s the time for many homeowners to cut household expenditure because of the recession, but there’s one expense you shouldn’t scrimp on: mortgage insurance. And especially so with the health threat of Covid-19. But what is mortgage insurance and why is it important? And why should you get one when you already have a life insurance plan?<\/p>\n

Fire insurance, home content insurance, mortgage insurance, wah lau, how many types do I need?!<\/em><\/h2>\n

Here’s a quick look at what each of these insurance policies cover:<\/p>\n\n\n\n\n\n\n\n\n\n
Coverage<\/strong><\/td>\nFire Insurance<\/strong><\/td>\nHome Content Insurance<\/strong><\/td>\nMortgage Insurance<\/strong><\/td>\n<\/tr>\n
Cost of rebuilding your home after a fire<\/td>\nYes<\/td>\nNo<\/td>\nNo<\/td>\n<\/tr>\n
Damage to items in your home that are damaged by fire, flood, etc.<\/td>\nNo<\/td>\nYes<\/td>\nNo<\/td>\n<\/tr>\n
Third Party Liability (i.e. legal costs you have to pay when your fire, flood, etc. damages the neighbouring units)<\/td>\nVaries, check the terms and conditions<\/td>\nYes<\/td>\nNo<\/td>\n<\/tr>\n
Losses from burglary<\/td>\nNo<\/td>\nYes<\/td>\nNo<\/td>\n<\/tr>\n
Outstanding mortgage in case of death or permanent disability<\/td>\nNo<\/td>\nNo<\/td>\nYes<\/td>\n<\/tr>\n
Total possible payout<\/td>\nReinstatement cost of your property after a fire<\/td>\nVaries, but often up to $200,000 for fixtures and renovation, and $50,000 to $70,000 for appliances. Many other costs, like lock replacement, are also covered.<\/td>\nPays off your entire outstanding mortgage<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

As you can see, it’s a really good idea to have all three. Mortgage insurance is the third component to protecting your property, as neither fire nor home content insurance pays off the mortgage.<\/p>\n

What happens if you don’t have mortgage insurance, and pass away?<\/h2>\n

If you are the sole borrower,<\/strong> then the bank will foreclose on the property and sell it; this is unless your family can cough up the remaining amount, or can somehow qualify to take on a home loan for the outstanding amount.<\/p>\n

If you co-signed the loan with someone else,<\/strong> then your co-signers will inherit the debt if <\/em>they’re qualified to take on your share of the loan. Otherwise, the bank forecloses as well. Note that it’s not just a matter of how much they’re willing to suffer to pay the mortgage. Your co-signers need to qualify<\/em> to take over the loan under the Total Debt Servicing Ratio (TDSR) framework. For example:<\/p>\n

Say you and your spouse both earn $5,000 each, and co-sign for the loan. Your monthly loan repayment (for a loan of around $1 million) is $4,200 per month. If you’re both paying this, you can easily meet the TDSR (60% of your combined $10,000 monthly income is $6,000).<\/p>\n

But if you were to pass on, your spouse would need to pay the whole $4,200<\/em>. This is way above the TDSR limit, so the bank can’t allow that. This would lead to foreclosure.<\/p>\n

In addition to this, the person taking over your loan needs to meet the usual requirements, such as having a good credit score, or being able to produce the last six months of payslips (i.e. they usually can’t rush to get a job that month, and hope to qualify). They also need to pay off arrears, such as late mortgage payments, all at once.<\/p>\n

How exactly does mortgage insurance work?<\/h2>\n
\"renter-insurance-renter
Mortgage insurance covers the outstanding home loan, whatever the amount may be<\/figcaption><\/figure>\n

If you use your CPF to pay for an HDB property,<\/strong> you’re usually required to buy mortgage insurance through the Home Protection Scheme (HPS). However, you are not obliged to use the HPS, and can choose to replace it with private mortgage insurance if necessary. If you have high coverage from other life insurance policies, you can also apply to HDB for exemption (although this may not be the best idea, for reasons explained below).<\/p>\n

For owners of private homes,<\/strong> mortgage insurance is not compulsory. You can choose to buy a Mortgage Reducing Term Assurance (MRTA).<\/p>\n

The MRTA will pay out if you pass away, or suffer Total Permanent Disability (TPD). The amount of the pay out is proportionate to your outstanding home loan (e.g. if you still owe $500,000, then it will pay out $500,000). Premiums for MRTA vary based on four main factors:<\/p>\n