Mortgage Insurance in Singapore
Singapore has one of the highest home ownership rates in the world at 87.9% (Source: Singstat). The vast majority of homeowners in Singapore have outstanding mortgages. If you are reading this article, you probably have an outstanding mortgage. Do you really need mortgage insurance? How can you save money in the long term?
– If you intend to stay in your HDB and never move => Stay with HPS
– If you want to save money by paying a lower premium => Shop for a cheaper Mortgage Insurance
– If you plan to upgrade your property in the future => Get a Level Term insurance
What is Mortgage Insurance?
Mortgage Insurance / Mortgage Reducing Term Assurance (MRTA) is designed to protect your family from paying the outstanding home loan if you were to pass away or become totally and permanently disabled (TPD).
Mortgage Insurance will pay out a lump sum equivalent to the outstanding loan in the event of death or TPD.
Why is Mortgage Insurance important?
If you have an outstanding home loan, what happens when you pass away? Will your family be able to take over the duty of paying the outstanding mortgage? Can they meet the Total Debt Servicing Ratio (TDSR) limit?
If your family is unable to take over the repayment of the outstanding mortgage, what happens to their home?
Your home is likely to be one of the most important assets that your family has. Responsible providers will want to make sure that their families will still have a roof over their head when they pass away.
Mortgage Insurance will ensure that their family will not face the financial burden of repaying the outstanding mortgage (which can amount in the millions).
What are the types of Mortgage Insurance?
MRTA is a specific kind of decreasing term insurance. The sum assured reduces over time and will ultimately reach zero as the policy expires. The sum assured is designed to match the outstanding loan throughout the loan tenure.
HDB owners should be familiar with the Home Protection Scheme (HPS). HPS is an example of an MRTA. It is compulsory to have HPS if you use your CPF-OA for loan repayments. You can apply for HPS exemption if you have the following insurance policies:
These policies must cover your outstanding housing loan up to the full term of loan or until you turn 65, whichever is earlier. (source: CPF)
How to save money with MRTA instead of HPS?
For most people, HPS is the default mortgage insurance unless they take the effort to look for an alternative. Let’s see how we can save money by getting a private MRTA instead of HPS.
Scenario: a 40 year old male non-smoker with a loan amount of $600,000 for 25 years.
HPS costs $851.40 per year (source: HPS calculator)
A private MRTA can cost as low as $643.80 per year.
By doing a 1 time paperwork for exemption, you can potentially save $4000+ in the next 20+ years.
What is the difference between MRTA and Level Term
Level Term / Term Life Insurance differs from MRTA because the sum assured stays level. This means that, if you started with a $1,000,000 sum assured, it will stay at $1,000.000 until it expires.
Using the same scenario from above, a Level Term plan for a 40 year old male non-smoker with a loan amount of $600,000 for 25 years can cost as low as $816.45. This means that you can get superior coverage and still pay less than HPS!
Get a quotation for your age and sum assured by inputing your info here:
Mortgage Insurance Comparison: HPS vs MRTA vs Level Term
Most Singaporeans start off with an HDB flat and use CPF for payment. By default, HPS is needed unless they apply for an exemption.
One drawback about HPS is that the policy cannot be “reused” when you move home. You will need to buy a new HPS or MRTA or Level Term policy and it will be underwritten at the age when you move home.
The older you are, the more expensive it is to buy a policy. More importantly, the older you are, the more potential health conditions you may suffer. This comes with a risk of not being accepted as a standard life or worse still, being denied coverage by the insurers.
Therefore, if you plan to upgrade your home in the future, it may be wise to choose a Level Term policy instead of HPS. “Lock in” a low premium when you’re young and healthy.
How a Level Term Plan can help you save money in the long term
John is a 30 year old male non-smoker. The premium for John for a $1,000,000 Level Term insurance to age 65 is $615 per year. This $1,000,000 sum assured and premium stay level throughout the policy.
When John buys his 4 room BTO with his wife, Jane, he can use this Level Term policy to get an exemption for HPS (Provided his loan is less than $1,000,000 and loan tenure is not longer than age 65).
10 years later, at age 40, John and Jane bought a bigger resale flat near a top school to cater to their 2 children. As long as the loan taken up is less than $1,000,000 and the tenure is not longer than age 65, the Level Term insurance he bought 10 years ago is still effective as a mortgage insurance. The premium remains at $615 per year.
For comparison, an HPS for $600,000 from age 40 to age 65 is $851.40 per year (source: HPS calculator)
10 years later, at age 50, John and Jane upgraded to a condo. As long as the loan taken up is less than $1,000,000 and the tenure is not longer than age 65, the Level Term insurance he bought 20 years ago is still effective as a mortgage insurance. The premium remains at $615 per year.
For comparison, a MRTA for $1,000,000 from age 50 to age 65 is $1,635 per year.
Not only is the premium more expensive, John may not get insured at standard rate or may even get declined if he has health conditions (eg, hypertension, high cholesterol etc).
Therefore, it makes sense to get a Level Term policy when you are young and healthy to “lock in” the low premium. This can be re-used again and again as your mortgage insurance throughout your lifetime. Do take note to have sufficient sum assured for future properties.
Another advantage of a Level Term insurance is that the sum assured does not reduce, unlike an MRTA. For example, If a claim is made 10 years later, an MRTA will only pay a lump sum equivalent to the outstanding loan.
On the other hand, the level term policy will pay a lump sum equivalent to the initial sum assured ($1,000,000 in John’s case). This allows the insured family to pay off the outstanding loan and still have excess funds for their financial needs (eg. education, living expenses etc).
How much does mortgage insurance cost?
Factors affecting the cost of mortgage insurance:
Example for $1,000,000 sum assured:
John, age 30, non-smoker, deskbound occupation cover to age 65 => $615 per year
Jane, age 30, non-smoker, deskbound occupation cover to age 65 => $535.65 per year
Level Term policies are getting cheaper due to competition. With all the additional benefits of a Level Term plan, it is wise to shop around to find the right policy because insurers adjust their pricing from time to time. Compare Level Term insurance from 8 insurers here. It only takes 2 minutes to input your details: