We’ve heard of insurance for health, accident, car, travel… but have you heard of mortgage insurance? Most importantly, how is it useful and do you need it? Do you need Home Insurance in Singapore?
Why Do I Need Mortgage Insurance?
A mortgage loan might be the biggest purchase you ever make in your life. Most people assume that they’ll finish paying the loan before the end of our lives, which may not be the case. This is where a mortgage insurance can help. It protects members and their families against losing their homes in the event of a premature death or permanent disability of the mortgage owner. With such an insurance, your family will not have to shoulder the burden of the outstanding mortgage loans, especially if they are elderly or young children.
In Singapore, those who own a public housing and are using their CPF savings to pay their monthly repayments will have to be insured under the Home Protection Scheme. For those who own a private property or an executive condominium, you’d have to get your mortgage insurance from either a private insurer or banks such as DBS. Do however note that a mortgage insurance is not mandatory and entirely up to your own discretion to subscribe.
In Singapore, most mortgage insurance works on a Mortgage Reduced Term Assurance (MRTA) coverage as the assured sum gradually reduces as your loan gets paid off. Here, we examine some reasons why you should consider getting a mortgage insurance:
- Property illiquidity
When we say an asset is illiquid, it means that it is not easily converted to cash. Say when you need a sum of money and you thought that you can quickly sell off your property to obtain the cash you need. However, selling a property will still take a few months even at its speediest. You need to advertise, arrange for viewing, meet someone who agrees to your price…etc. Therefore, if something unfortunate happens to the mortgage owner, his family may be put in a difficult situation where they will need to service the mortgage loan while struggling with a low level of ccash on hand. With a mortgage insurance, the loan will be taken care of while the family can focus on other more urgent matters.
- Transferable Coverage
If you decide to sell your currently insured property to buy a new one, you can transfer the remainder of your MRTA onto the next property. This helps to ensure your premiums are affordable and not “wasted” as you do not need to service a new mortgage insurance from the start. The HPS scheme for public property works differently though, as the policy will be terminated when you sell the house or make on early redemption of your mortgage loan. You will also need to be issued a new policy should you decide to refinance or re-price your current mortgage.
- Lower Premium Compared To Life Insurance
Life insurance can also help to protect your family against homelessness when the unfortunate happens. However, you will have to pay the premium throughout the policy life whereas for a MRTA, the premium towards the last few years of the mortgage tenure will be waived. Or else, there are others like the OCBC’s Mortgage Protector Series which gives you a full refund of your premium should there be no claims made at the end of the policy term.
- Many types of coverage available
There are different types of coverage for MRTA schemes, namely single, joint or dual coverage. If the loan is taken togethere under two person, joint coverage will take care of the outstanding mortgage if either of them pass on so that the remaining owner will not need to pay for the mortgage. Dual coverage will include two individual policies that cover 100% of the mortgage each.
Most insurers also allow you to select from a range of payment schedules: monthly, quarterly, half-yearly or the regular annual premium. You can even opt for a one-time lump sum payment Such flexibility allows you to better manage your cash flow.
Do note that a mortgage insurance is different from a home insurance which protects against damages to your home due to fire, explosion or natural disasters. Although mortgage insurance is not compulsory, you should give it serious consideration given that private properties are expensive and any surviving dependents will need to shell out a substantial sum of money to pay off your existing housing loan in the event of premature death or permanent disability.