If you’re taking a home loan to buy a property, chances are: you’ll be required to pay for Mortgage Reducing Term Assurance, or MRTA, by the bank as part of your loan arrangement. Some banks insist on the borrower taking out this policy, or another kind of life insurance policy, while some banks merely encourage you to do so.
If you’re one the tens of thousands of first-time home buyers out there who are wondering why you need to fork out precious Ringgit to pay for this home loan insurance, allow us to shed some light on MRTA and what it means to your home loan deal.
What Is MRTA?
MRTA is an insurance policy that settles outstanding home loan amounts in the event of death or total disablement of the borrower due to natural causes, illness or accidents. Exclusions include death due to suicide and AIDS/HIV.
Why Would You Need MRTA?
MRTA is essentially a protection mechanism for all people with home loans, especially for households with sole bread earners.
Generally, in the event of untimely death or disability of a home loan borrower (significantly if he or she is the main income earner), the greatest problem facing surviving households is their ability to pay off the remaining home loan.
In many instances, the surviving family members may even need to sell off the property at a less-than-competitive price just to pay off the outstanding amount.
By signing up for an MRTA, the MRTA will pay off part or all of the unpaid portion of a home loan, so that the surviving family members don’t have to sell off the property.
For example, if you and your husband buy a house for RM500K this year and in 10 years’ time, it’s worth RM600K but your loan still comes up to RM400K, should your husband not be able to pay the loan anymore, you could still sell the house and buy a small apartment for RM150K, or make sure you earn enough money to pay the instalments.
If you had the insurance, however, the policy would pay for whatever outstanding debt left, or part of it, so that the monthly installments are less onerous.
How Does One Apply for MRTA?
In Malaysia, MRTA is usually incorporated as part of the home loan application process. Commonly, you’ll only be required to pay a single MRTA premium. You will not need to pay a premium again throughout the entire duration of the policy.
Important Considerations for MRTA
Like any other insurance policies, MRTA has a specific insured amount as well as policy duration. The premium depends on the sum assured, interest rate, term, construction period, joint-life, and age at next birthday, among others. Discount on the premium is given for joint life application if your home is jointly owned by your spouse or next of kin.
Bear in mind that in the event of death or permanent disability, MRTA would pay off only the amount that is covered, within the time, as dictated by the policy. It does not pay for everything that the insured owes to the bank. Due to the above reason, home loan applicants are generally advised to purchase MRTA based on your specific requirements (instead of just going for the cheapest policies available).
For sole bread earners, buying maximum coverage is especially recommended despite a heftier premium, because your families are more at risk should anything happen to you. For households with multiple income earners, you may consider opting for a policy with lower coverage.
The premium can also be financed by your bank, as in bundled into your loan.
source: http://www.starproperty.my/index.php/articles/investment/mrtas-mltas-what-are-they-and-do-i-need-it/
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