Recently, a powerful 7.7 magnitude earthquake struck Myanmar, causing neighbouring countries like Thailand to experience tremors. The disaster has led to widespread destruction, leaving many homes in ruins.
Meanwhile, closer to home, a gas pipeline explosion triggered a fire in Putra Heights, Malaysia, causing nearby houses to burn.
Now imagine this: A natural disaster strikes, and your home collapses into rubble. Amid the shock and chaos, a pressing question arises: do I still need to pay for my home loan?
Many homeowners assume that if their property is gone, so is their financial obligation, but the reality isn’t so simple.
In this article, we’ll break down what happens to your home loan after a natural disaster, whether insurance can help, and what steps you should take next.
Loan Facts to Understand During a Disaster
The Answer to Your Question
So, if my house collapses, do I still have to pay my home loan?
| In such scenario, you might be thinking about two key concerns: 1. Opt out of the housing contract due to unexpected natural disaster. 2. Get your money back considering the property has been damaged. |
The long answer is it depends on your fire insurance policy as certain insurance company may offer some emergency relief.
The short answer is yes, most losses will be borne by the homeowner themselves.
However, even if your house collapsed, it does not mean that you have to give up on your new home entirely. In most case, the project will continue and will be rebuilt.
In other cases, you might feel uneasy about living there due to safety concerns. So, what do you need to know about before ending all housing contract?
Step 1: Understanding Home Loan Obligations After a Natural Disaster
After signing the Sales & Purchase Agreement (SPA), the home is legally yours, and you’re committed to making payments. This makes terminating the contract challenging, even if the condo collapses.
Standard SPA does not automatically allow cancellation in such cases, but if the developer agrees, both parties can enter a termination and settlement agreement. Though it may come with penalties or conditions outlined in your SPA.
Furthermore, ending your SPA only cuts ties with the developer, not the bank. The bank only acts as your financier thus it does not cancel your housing loan which you still have to repay what you owe.
This means you could lose the condo but still be stuck paying for it.
Step 2: Understanding The Types of Insurance
These are three common types of home insurance bought by Malaysians.
Understanding the types of insurances is essential for homeowners to ensure they are fully covered in the event of unexpected circumstances.
1. Mortgage Level Term Assurance (MLTA)
MLTA offers life insurance with added security, savings, and potential returns.
If the borrower is no longer around, the insurance company pays off the remaining mortgage debt, allowing dependents to stay in the property without financial worry.
2. Mortgage Reducing Term Assurance (MRTA)
MRTA is an insurance plan that decreases over time to cover the outstanding home loan. It protects the bank in case of the borrower’s death or total permanent disability (TPD).
If the loan isn’t fully settled, the bank may still seek payment from the family.
3. Fire Insurance
Fire insurance covers the property. It compensates for damages caused by fire, water damage, and other specific circumstances.
For certain insurance companies, they may offer coverage for natural disasters, including earthquakes.
| Below are the list of insurance companies offering such coverage: 1. Allianz Smart Home Cover 2. Allianz HouseOwner & Householder Insurance 3. AIA A-Essential Home 4. Chubb My Home Insurance 5. Takaful myHouseowners & Householders 6. Great Eastern Easi-Home |
Comparison between MRTA, MLTA, and Fire Insurance
| MLTA | MRTA | Fire Insurance | |
| Housing loan amount (90% financing) | RM300,000 | RM300,000 | – |
| Tenure | 30 years | 30 years | 1-year policy, renewable annually |
| Interest Rate | 5% | 5% | – |
| Total cost of premiums | RM18,841 | RM132,120 | RM500 – RM2,000 per year |
| Payment method | Usually paid as a one-time lump sum upfront | Paid on a monthly basis so the payments are stretched out over 30 years | Paid annually |
Step 3: Types of Compensation
As mentioned above, you have the legal duty to fulfill your responsibilities stated in that contract.
However, you can get compensation from the developer if they did not fulfill their responsibilities instead. In this case, breaching the contract in terms of:
- Negligence: The developer’s carelessness such as poor selection of contractors and materials, was the reason the condo collapsed in the first place.
- Issued Stop Work Order: The developer issued no construction work can be carried out for the time being.
- The developer has no progress of work in 6 months or more.
How Can We Minimize the Impact of Natural Disasters on Our Homes?
- Ensure Proper Foundation: Have a solid and well-engineered foundation to support the structure of your home and invest in professional assessments before construction to avoid issues later on.
- Regular Maintenance: Conduct regular checks on your home, particularly for structural weaknesses, cracks in the walls, roof, or foundation.
- Choosing Experienced Developers and Contractors: Work with reputable and experienced builders who adhere to local building codes and safety standards.
- Proper Drainage Systems: Ensure your home has a well-designed drainage system to prevent water accumulation around the foundation as it can weaken the structure over time.
- Monitor Soil Movement: Pay attention to soil erosion or shifting, especially if your home is built on unstable ground.
In conclusion, while purchasing a home can be a good investment, these proactive measures will help safeguard your home and ensure you’re better equipped to handle unexpected challenges.
Secondly, it’s crucial to maintain a reasonable level of financial leverage and ensure your housing expenses do not exceed 30% of your monthly income.
In case of unforeseen events like a house collapse, being financially prepared with sufficient savings can prevent unnecessary reliance on friends or family.
Always prioritize your financial stability and keep a safety net for emergencies.
FAQ
What happens if the condo I’m living in or renting out collapses?
You still have to continue paying the loan, but some fire insurance policies offer emergency relief funds.
What happens if a fire breaks out and burns down my home?
In the case of natural fire disasters and third-party involvement, you are still legally obligated to continue paying your home loan but you may have options for fire insurance coverage. Furthermore, if a third party causes the fire (e.g. negligence), you may be able to seek legal compensation to ease the financial burden.
What happens if the SPA is signed and progressive interest is paid, but the property is still under construction?
Since the bank has paid the developer, the house is legally yours. Like abandoned projects, you must keep paying the loan—even if an earthquake damages or collapses the building.
Can I terminate my SPA contract?
It can be done only if the developer agrees to a termination and settlement agreement.
How much money should I save to buy a house?
Ideally, you should have a 10% down payment and RM500 per month for every RM1,200,000 in property value.
Are you dealing with the aftermath of a natural disaster or looking for an expert to handle your home inquiries? Let our trained professionals guide you through the process.
Inquire below to get the support you need today.
Continue Reading:
