You might feel like taking a victory lap after scoring the keys to your new home, and we shall wait for you to do so. However, being a homeowner is far from the endgame and comes with its own set of responsibilities.
Did you know that the average homeowner takes up to 35 years to pay off their mortgage? Should anything untoward happen to you, you want to ensure that your landmark investment is appropriately protected. Undoubtedly, financial troubles for loved ones are not 2021-resolution material.
Banks usually offer mortgage insurance when you’re taking out a loan. Still, the borrower may not opt for it, indicating a lack of awareness about mortgage life insurance’s vital role among the Malaysian population.
Firstly, allow us to explore the two insurance types offered in Malaysia:
Mortgage Reducing Term Assurance (MRTA)
This life insurance plan comes with a decreasing sum assured over time. It is used to cover your outstanding loan in the misfortunes of death and total permanent disability (TPD). For this reason, MRTA is the more popular and economical option provided by your lending bank.
In general, most banks offer a lower interest rate on your home loan if you subscribe to a policy and pay the premium charge upfront as a lump-sum. However, this would depend on a number of factors such as age and insured amount.
Mortgage Level Term Assurance (MLTA)
MLTA is similar to MRTA but varies slightly. It offers repayment of not only the outstanding loan, but also a guaranteed cash value back at the scheme’s end. The nominated beneficiary will help keep your family afloat in the events of your death or total permanent disability (TPD).
It has a constant sum assured throughout the policy’s tenure period. MLTA is purchased separately through an insurance broker, with complete protection plus additional savings and in some cases, policy returns on premium.
MRTA vs MLTA
To put it plainly, here are the key differences between the two insurance types:
|Purpose||Protection||Protection, savings & cash value|
|Protection||Sum insured reduces in line with outstanding loan until it reaches zero according to loan tenure.||Sum insured remains constant on a fixed level sum assured basis.|
|Transferable||No||Yes, easily transferred & ideal for investment properties|
|Nomination||Beneficiary is the bank, family will receive no cash value||Beneficiary can be anyone, nominated by the policy-holder|
|Financing||Usually financed into home loan||Usually self-financed|
|Payment||Lump-sum||Periodic, i.e. monthly, quarterly, semi-annually or annually|
|Cash Value||None||Yes, fixed cash value throughout the loan tenure|
|Claim||Insurance company will pay the loan settlement directly to the bank||Insurance company will pay the loan settlement to the bank & beneficiary will receive the home plus cash|
|Cost||About 10x more affordable than MLTA||Insurance premiums of RM357.13 per month or RM4,081.50 per annum|
You will need to undergo a medical checkup to qualify for both plans. Upon discovering a serious illness, the insurance provider may reject you or raise the premium.
Which should I go for?
Now comes the all-important question. MRTA vs MLTA. Which should you choose? It’s fundamentally based on your situation.
MRTA is most suitable for young adults on tight budgets who already have good standalone life and medical insurance. If you’re free of financial dependents and plan to keep your house long-term, then this coverage is ideal for you.
Your home loan will be fully repaid in case of death or TPD, and your family will inherit the property. However, do note that MRTA is affected by fluctuations in interest rates. If interest rates increase and the amount is insufficient to cover the balance, the deceased’s family has no choice but to fully repay the mortgage or lose the house.
MLTA is recommended for those who are the sole breadwinner of the family with several dependents, such as young children and a homemaker spouse. It is also suited to those who keep the property short-term or use it for investment since the policy is readily transferable.
Like life insurance, age plays a role in MLTA—the older you are, the higher the premium. If anything happens, your family will receive payment from the insurance provider to pay off the remaining balance. Any difference between the policy’s value and what is owed to the bank will go to your family.
Things to consider
Customers must fathom the terms and conditions of MRTA vs MLTA’s; otherwise, they might find themselves without a roof over their heads were the insurance company to disapprove the claim.
You may want to consider your budget as well, as the premiums for an MLTA policy come at a higher price. If servicing those monthly or annual premiums are bound to take a toll on your finances, and you have other medical and life insurances set, it’s best to get an MRTA.
Where can I apply for mortgage assurance?
Banks are allies of MRTA and will generally suggest this policy, but be reminded that you’re in no way obligated to purchase it from your lender. Most insurance companies offer MLTA as it is a hybrid of life insurance granting both protection and savings.
As for the question: MRTA vs MLTA, which is better? The answer will be clear when you take the time to shop around for the best deal from different insurance companies before making an informed decision that’s best for your situation.
Learn more about Freehold vs Leasehold or how you can apply for PRIMA housing. We have plenty of news on upcoming and trending properties for your perusing on Lokaprop!