Selecting the right mortgage insurance may be one of the most important life choices you may make.
For many Malaysians, buying a home is a huge commitment, and if you are a first-time homebuyer, the risks involved may surprise you. Therefore, to keep your efforts from going to waste, you should invest in mortgage insurance to protect your investment and your family, even when you are no longer able or around to pay for it.
In Malaysia, there are two mortgage insurances available to homebuyers: Mortgage Reducing Term Assurance (MRTA) and Mortgage Level Term Assurance (MLTA). Whichever mortgage insurance you choose, it can help ease the financial strain on your family if something happens to you.
In this article, we highlight the differences between the two mortgage insurances available in Malaysia to help you decide which is best for you.
What is an MRTA?
An MRTA is a popular and affordable type of life insurance due to its budget-friendly premium during the home loan application at the bank. You can select your policy’s coverage amount and tenure, while the premium charged (paid up-front as a lump sum) will depend on your age, gender, etc.
How an MRTA works is if you suddenly pass away or become disabled, the insurance will repay your outstanding home loan to the bank. Therefore, you will lessen your family’s financial burden of having to pay off your home’s outstanding loans.
Additionally, the policy will lose value once the loan is paid off and you pay off your mortgage as per the agreed-upon terms. While it is not compulsory to take up an MRTA insurance loan, some banks may insist you apply for one to cover the loan’s value.
However, it is vital to note that an MRTA is not refundable to the applicants or their beneficiaries. Instead, the bank is considered the beneficiary.
What is an MLTA?
An MLTA is mortgage insurance offered by a mortgage loan broker or insurance agent. It offers repayment of your outstanding home loan as well as a guaranteed cash value back at the end of the scheme, similar to a life insurance policy.
This cash benefit will help your family if you suddenly pass or become disabled and unable to generate income. Moreover, unlike an MRTA, anyone can be a beneficiary of an MLTA. The most important benefit of this mortgage insurance is that the insurance proceeds are credit-proof and will not be frozen.
There are also some MLTAs that offer policy returns on premiums to fulfil your family’s financial necessities. Some even provide the option of including a medical rider for critical illnesses too, providing you and your loved ones with more protection.
However, because MLTA is a form of regular life insurance, the premium amount you must pay regularly is not deductible from your mortgage.
Therefore, it’s crucial that you understand the MLTA terms and conditions before applying for one.
How Are MRTA & MLTA Different?
Both mortgage insurances offer peace of mind and will protect your investment when you buy a home. However, how they work is quite different.
The MRTA is a mortgage insurance used to repay the home loan you owe to the bank. It is usually offered by the bank you are getting your mortgage from. This form of mortgage insurance is most suitable for someone living independently, with adequate medical insurance and who does not have many people who are financially dependent on them.
This is because the sole beneficiary of the MRTA is the bank, not your family members. However, your family will get to inherit your property without any loans attached.
On the other hand, the MLTA offers an alternative for a borrower looking for life insurance that provides protection, savings and returns on the premium. It is not included in your housing loan, and applicants would generally purchase the mortgage insurance from an insurance broker or agency.
This form of mortgage insurance is recommended for those who require additional financial protection, as borrowers or their beneficiaries will receive a cash value at the end of the policy. It is best for those with many financial dependents, such as young children and a stay-at-home spouse.
However, the MLTA is a long-term financial commitment. Keeping this plan for a short period is not recommended considering its high initial costs.
Which Mortgage Life Insurance Should I Get?
Generally, your mortgage offer will require you to apply for an MRTA policy with the lender. However, the type of mortgage insurance that is best suited for you will depend on your budget, age, family situation, borrowed loan amount and how you view risks.
Consult a financial expert if you do not know which mortgage insurance will suit your needs, and do thorough research when comparing your options, so you get exactly what you need.
How Much Does Mortgage Insurance Cost in Malaysia?
When calculating the costs of an MRTA or MLTA insurance, the bank or insurance provider will consider a range of factors, including:
- Your age
- Any health problems you may have
- The loan amount you are applying for
- The mortgage term you’ve agreed
In Malaysia, each bank or insurance provider has their own policy on calculating the costs of both MRTA and MLTA and will provide customised quotes to suit the applicant’s situation.
Moreover, different policies will have varying levels of protection and differing fees to consider. Therefore, the best way to find out more about mortgage insurance costs is to consult your preferred mortgage provider or a specialist insurance broker to obtain some quotes for comparison.
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Every individual’s circumstances are unique. The type of mortgage insurance you need depends on many factors, including your personal situation, future plans and the property you’re buying.
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