When you are buying a home, there are a few things that you need to consider; one of them being how you could protect your investment should something happen and you are no longer around to service it.
Leaving a home for your next in kin is a form of legacy you want to provide in the event of death or total permanent disability (TPD) but if the home loan is not settled in full, it can become a burden for your loved ones if you do not have any mortgage insurance.
What is the difference between Mortgage Reducing Term Assurance (MRTA) or Mortgage Decreasing Term Assurance (MDTA) and Mortgage Level Term Assurance (MLTA)?
So what is MRTA (or MDTA) and MLTA?
To break it down for you, MRTA or MDTA is a life insurance plan with a decreasing sum assured over time, used to cover your home loan owed to the bank.
The bank who approves your mortgage loan is usually the one providing MRTA; this is used as a protection for the bank in case unfortunate circumstances hinder you from paying the loan. While Bank Negara Malaysia does not make it compulsory to buy mortgage insurance, customers who borrow money from financial institutions will find that their loan approvals are tied to a mortgage insurance policy.
On the other hand, MLTA offers an alternative for a borrower who is looking for a life insurance offering protection plus savings as well as some returns on the premium. More commonly seen as a personal plan, you and your dependents will be financially protected when you are either no longer around, or have lost the ability to generate income.
Which mortgage life insurance should I purchase?
Following is a comparison of the estimated payout between MRTA and MLTA based on insurance coverage for the sum of RM450,000 using 6% interest rate over 30 years starting in 2018 for a 28-year-old homeowner:
|Premium||RM16,759.00 (one-time)||RM4,081.50 (annually)|
|Total cost (30 years)||RM16,759.00||RM122,445.00|
|No claim cash back (30 years)||RM0||RM184,383.00|
|If payout of insured amount happens in 2020||RM438,274.00||RM450,000.00|
* These figures are used as reference as the interest rate will differ from insurer to insurer; refer to your original policy for the actual terms.
So is it worth having?
MRTA is best to have if you are looking at a short term investment where you are planning to sell off your property within the first few years, whereas MLTA is best for those who are planning to invest in the property for the next 35 years, especially if you are co-buying with someone else. MLTA also works well for those on a long term investment basis where it has a cash value at the end of the policy. Additionally, it is best for those who have young children or loved ones who are financially dependent on them as well.
Being an independent mortgage advisory, Ohmyhome saves you time by providing the best home loan comparison across all banks’ mortgage packages, bias-free. Get in touch with our mortgage specialist at +60 16-299 1366 to learn more!
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