MRTA Vs MLTA: Which Is The Best For You?
Mortgage Assurance is a type of insurance that will cover your outstanding property loan a.k.a. mortgage if you are unable to do so in the event of death or total permanent disability.
Without this, the provider of the insurance, also known as the lender, will repossess your property and auction it off if your family fails to repay the remaining balance on the loan.
While Bank Negara Malaysia (BNM) doesn’t require mortgage insurance, many financial institutions areunlikely to lend to a home buyer if he doesn’t subscribe to a policy.
A bank may even offer a slightly lower interest if they do. However, BNM allows borrowers to take-up a mortgage insurance being sold by other companies not just the one offered by the lender providing the housing loan.
In Malaysia, there are two types of insurance offered for housing loans – Mortgage Level Term Assurance (MLTA) and Mortgage Reducing Term Assurance (MRTA). Each comes with different perks and disadvantages.
Which Is More Expensive?
The insurance premiums for MRTA or MLTA depends on your age, the insured loan amount and how long the mortgage will be repaid. Basically, you will be paying a higher premium if you are older, insuring a greater loan quantum and will be repaying the loan for a longer time. In addition, you need to undergo a medical check-up to qualify for either. If a serious illness is discovered, the insurance provider might reject you or raise the premium.
But basically, MRTA is about ten times more affordable than MLTA. For instance, if a 28-year old Malaysian took out a RM450,000 housing loan with a tenure of 30 years and interest rate of six percent for a property costing RM500,000, he only needs to fork out a one-time payment of RM11,695.50 to secure an MRTA insurance policy. There is also lower cash outlay on your part as MRTA can be bundled together with your mortgage.
On the other hand, if you acquire an MLTA insurance policy, you need to pay insurance premiums of RM357.13 per month or RM4,081.50 per annum. Over the 30-year tenure of the mortgage, the premiums will total RM122,445.
|Years to Pay||30||30|
Which Offers Greater Protection?
MLTA offers greater protection as the amount insured remains the same throughout the life of the loan. In comparison, the amount insured under MRTA declines each year and will reach zero at the end of 30 years. Moreover, only the lender will be entitled to the insurance payout under MRTA, while you can nominate anyone to be the beneficiary under an MLTA insurance policy.
For example, if the borrower suddenly dies or suffers total permanent disability after 10 years of paying a portion of the RM450,000 housing loan, the bank will receive RM411,300 from the insurance provider to pay off the loan if the borrower subscribed to an MRTA policy.
Given that the insured amount under MRTA falls every year, it’s possible that insurance payout may be insufficient to cover the remaining loan balance, particularly if interest rates increase or the insured period ends earlier. This means your family may still need to fork out cash to fully repay the mortgage, otherwise they’ll lose their home.
But if you took out an MLTA insurance, your family will always receive RM450,000 from the insurance provider to pay off the remaining balance of the housing loan. Assuming RM400,000 has already been paid before the unfortunate incident happened, your family will get a windfall of RM50,000 from the insurance payout.
|Years to Pay||30||30|
|Insured Amount after 10 years||RM411,300||RM450,000|
Aside from that, if the borrower is still alive and well after 30 years and the housing loan to the bank has been repaid, you will get RM184,383 from the insurance provider. This means the you will get back the RM122,445 insurance premiums you’ve paid in all, plus an extra RM61,938. But if you took out an MRTA insurance, you will get nothing. At least, you’re still alive and kicking.
|Insured Amount after 10 years||RM450,000||RM450,000|
|No claim cashback||RM0||RM184,383|
MRTA Or MLTA: Which Should I Choose?
It depends on your situation. If you don’t have many dependents relying on you financially, then applying for an MRTA is more advisable. But if you have a large family and you’re supporting them financially, it’s better to subscribe to an MLTA policy due to the consistent and higher insurance payout.
MRTA is also more preferable for those buying a home for long-term occupation. This is because it’s not easy to transfer the insurance just in case you sell your house. On the other hand, MLTA can be easily transferred, making it ideal for investment properties.
But among the key considerations is whether you will have enough budget to pay the premiums for an MLTA policy throughout the life of the loan. If you think you will struggle to service those monthly or annual premiums, it’s better to stick with an MRTA insurance.
Furthermore, if you have other medical and life insurances that you think are enough for your dependents, it’s advisable to get an MRTA. But if you don’t have other insurances, its best to get an MLTA policy.
|Better for those with||Few dependents||Many dependents|
|Plenty of insurance coverage||Limited/ zero coverage|
|Lower budget||Higher budget|
|Purpose of property||For Long-term occupation||For Investment|