Most people consider buying a home a dream come true, but are you well aware of how huge a commitment it can be?
Repaying your home can take up to 35 years. Thus, you must protect your investment if you can no longer service the loan.
Everybody wants to provide a home for their loved ones, but if the home loan has not been completely settled, it can be a burden for your dependents to service the loan.
Two types of mortgage life insurance are available in Malaysia to protect your investment: Mortgage Reducing Term Assurance (MRTA) and Mortgage Level Term Assurance (MLTA).
Which Insurance is Meant for Me?
What is Mortgage Reducing Term Assurance (MRTA)?
MRTA is an insurance plan with a decreasing sum assured over time to cover your outstanding home loan or mortgage owed to the bank.
The bank usually offers this plan you are getting the mortgage from, as it is used as protection for the bank in the event of death or total permanent disability (TPD) that stops you from servicing the loan.
What is Mortgage Level Term Assurance (MLTA)?
On the contrary, MLTA is slightly different from MRTA.
It is an option for a borrower looking for life insurance that offers extra security plus savings and, in some policies, returns on the premium.
When you are no longer around or do not have the ability to generate income, a mortgage insurance policy frees the borrower’s dependents from any debt.
The insurance company will pay off the remaining debt on repayment of mortgages.
Thus, allowing your spouse or beneficiaries to continue staying in the property debt-free without having to worry about settling the house loan.
Comparison between MRTA and MLTA
MRTA
MRTA works well if you have few financial dependents and already have life and medical insurance. But if you don’t have other coverage, MLTA might be a better fit.
MRTA covers your home loan in case of death or TPD, but the payout goes to the bank, not your family.
MLTA
If you have multiple financial dependents, like children or a stay-at-home spouse, MLTA is ideal as it offers extra protection and cash value.
MRTA is better for long-term property ownership, but MLTA is more flexible since it can be transferred if you plan to sell or invest.
It is important to consider that you can pay the premiums for an MLTA policy throughout the duration of the loan. If it is challenging for you to service monthly or annual premiums, it’s better to go with the MRTA insurance.
Which Insurance Plan Should I Get?
Now that we have learned the differences between MRTA and MLTA insurance plans. We’ve created a comparison chart to help guide you for your needs:
| MRTA | MLTA | |
| Housing loan amount (90% financing) | RM300,000 | RM300,000 |
| Tenure | 30 years | 30 years |
| Interest Rate | 5% | 5% |
| Total cost of premiums* | RM18,841 | RM132,120 |
| Payment | Paid in one lump sum at the beginning | Paid on a monthly basis – so the payments are stretched out over 30 years |
MRTA
| Pros | Cons |
| Lower total premium cost | No cash value for your family; settlement goes to bank |
| Only requires one lump sum payment | Coverage affected by interest rate fluctuations |
| Can be bundled with your housing loan | Covers only death and Total Permanent Disability (TPD) |
| Sum insured decreases over time, leaving zero cash value |
MLTA
| Pros | Cons |
| Protection remains the same throughout the tenure | Higher total premium cost, up to 10 times more than MRTA |
| Cash value accumulation, withdrawable anytime | Premium increases with age |
| Easily transferable to new property purchases | Higher overall cost if purchased later |
* These figures are used as a reference as the interest rate will be different from one insurer to another; refer to your original policy for the actual terms.
Pro tip: Bank Negara Malaysia (BNM) doesn’t require homebuyers to purchase mortgage insurance; however, many financial institutions are unlikely to lend to a home buyer if he doesn’t subscribe to a policy.
Now that you’ve learned the differences between these two insurance plans, you could make the right better decision for you and your family!
Home insurance is such an important element in the buying house process, but what’s the use if you can’t find your dream home? We’re ready to help! Connect with us to get started now!
