The important of mortgage insurance

The important of mortgage insurance

Lately, one of my clients, James, involved in road accident and passed away. It was a shock to me. It is because the day before he just called me up and informed that he wish to rent out his apartment.

Few days later, I went to his funeral ceremony. During the conversation with his wife, I noticed that James didn’t purchase mortgage insurance for any of his property. His wife was required to pay the mortgage repayment on behalf of James. However, his wife was a household and didn’t have any source of income. And yet, there were not one but three properties with similar situation. In other words, she needed to pay the mortgage repayment for all three properties. Now, these properties become her financial burden.

Well, I realised that many home buyers especially first time home buyers didn’t realise the important of mortgage insurance.

So, what is mortgage insurance?

Mortgage insurance is a type of insurance policy that allows the home owner to cover his loan tenure in the event of death or TPD (Total Permanent Disability).

Generally, if you need a loan in order to buy a house, you approach a bank but while running you through their due process, they will offer you mortgage insurance and encourage you to buy it. There are two types of mortgage insurance that you can find in market – either Mortgage Reducing Term Assurance (MRTA) or Mortgage Level Term Assurance (MLTA).

To find more details on MRTA and MLTA, click here.

Mortgage insurance’s minimum tenure is five years but it is your prerogative on how many years you want to buy. It is not compulsory for you to commit any mortgage insurance when you are obtaining your mortgage. Since then, it is not surprise that some people choose not to purchase it in order to reduce their homeownership cost.

The consequences of not buying mortgage insurance could be a night mare to some people.

The objective of mortgage insurance is providing security to your loved ones from being burdened by home loan repayments if you pass away or are afflicted by permanent disability. As if James was purchased any mortgage insurance previously, his family will not suffer from paying monthly mortgage repayment.

However, if you do not have anyone to leave your property to and money is tight, getting a mortgage life insurance may not be your highest priority.

For those with dependent however, it’s worth considering. Especially, if you are planning to service your mortgage for the next 30 years, and you are joint name with someone else, it will be best if you are protected. The key is having a mortgage insurance will provide you the peace of mind that you will not lose your property even if the other person is unable to pay for the mortgage.

Lastly, mortgage insurance definitely will increase your home ownership cost but you may choose to finance it into your housing loan. Although this will increase your mortgage repayment as you will pay more interest to the bank, it still encourage buying it as it protects your home.