Is Mortgage Insurance Really Necessary in Singapore?

As Singaporeans embark on homeownership, the question of whether mortgage insurance is an essential safety net or an additional financial burden looms large. The intricate interplay between the potential benefits and perceived mortgage insurance costs demands exploration, shedding light on its multifaceted nature. So, let’s dive in!

What is mortgage insurance in Singapore?

Just as life insurance offers a safety net for your loved ones, mortgage insurance also plays a pivotal role in protecting you and your family members against life’s uncertainties, including death, terminal illness and/or permanent disability.

When the unexpected occurs, and you are unable to pay mortgage instalments, the insurer steps in to cover the outstanding mortgage balance. It ensures the property remains protected and the family’s financial stability is preserved.

Depending on the insurance coverage, the insurer offers a substantial lump-sum payout. This payout helps to alleviate the burden of outstanding mortgage payments, providing a much-needed lifeline during challenging times.

In Singapore’s dynamic property landscape, mortgage insurance acts as a buffer that safeguards your life’s biggest financial investment while ensuring that your loved ones always have a roof over their heads.

Why do you need mortgage insurance?

Mortgage insurance acts as a safety net, protecting your loved ones and your investment in the property. As long as you have taken a loan to finance your home purchase, consider getting a mortgage insurance:

Mitigating the Impact of Income Loss

A critical aspect of mortgage insurance is its ability to cushion the financial blow resulting from a permanent loss of income. The sudden absence of a breadwinner due to death or disability can potentially throw a family into financial turmoil, making it hard to sustain mortgage payments and maintain the home’s stability.

Mortgage insurance helps to ease this financial burden by providing a lump-sum payout that can be directed towards settling mortgage obligations, either partially or entirely. This safety net lets families maintain stability and financial security during upheaval.

Empowering Families to Preserve Homes and Memories

A home is more than bricks and mortar; it’s a repository of memories, a sanctuary of comfort, and a symbol of togetherness. Mortgage insurance recognizes the importance of this emotional investment and ensures that families can retain their homes even in the face of life’s uncertainties.

By preventing the threat of foreclosure or forced sale, mortgage insurance contributes to preserving the haven where you have woven countless cherished moments.

When deciding whether you should buy mortgage insurance, there are some questions and situations you should consider:

Can your family continue making loan repayments without you? Consider mortgage insurance if your passing away would leave your family unable to handle home loan repayments. Insurance payouts would ensure loan repayment, allowing your family to keep the property without financial strain.

Is your family planning to reside in the property you bought? Buying mortgage insurance is essential when your family resides in your home and relies on your income. Without insurance, if your family can’t repay the loan, the property might be sold or foreclosed, leaving them homeless.

Are you buying the property together with another person? If co-purchasing, particularly as joint tenants, consider mortgage insurance for both parties. Insurance safeguards the property in case of a partner’s death or inability to work, preventing loss or forced sale.

Holding the property as joint tenants: If you own the property jointly, mortgage insurance is crucial unless your co-purchaser can handle your share of repayments. Otherwise, your partner might face financial strain or the property’s loss if you can’t contribute.

Holding the property as tenants-in-common: Even if property shares can be sold separately, mortgage insurance is advisable. Personal reasons might prompt your co-purchaser to want your share paid off to prevent potential issues or a sale to a stranger.

What types of mortgage insurance can you find in Singapore?

In Singapore, there are several types of mortgage insurance available to homeowners, each serving a unique purpose and providing varying degrees of coverage. The following are three prominent types of mortgage insurance commonly found in Singapore:

1. Home Protection Scheme (HPS)

Home Protection Scheme (HPS) is a mortgage-reducing insurance tailored for HDB flat owners. It safeguards your home loan by providing coverage in cases of death, terminal illness, or total permanent disability. HPS covers HDB owners up to age 65 or till your housing loan is fully repaid—whichever is earlier.

Should the insured individual pass away or become permanently disabled before the age of 65, the CPF Board will pay the outstanding amount on your home loan. It ensures your loved ones are shielded from potential financial strain and do not lose the roof on their heads.

HPS presents an economical choice, extending coverage throughout the mortgage term. As time progresses, the coverage amount diminishes in line with the remaining housing loan balance, ensuring a proportional and cost-efficient safeguard.

2. Mortgage Reducing Term Assurance (MRTA)

When people talk about mortgage insurance, it usually means private mortgage insurance, essentially known as MRTA. It is the most prevalent type of mortgage insurance in Singapore.

It provides coverage for the outstanding mortgage loan amount in the event of the policyholder’s death, permanent disability, or critical illness throughout the policy term. The insurance payout settles the remaining mortgage balance, preventing the burden from falling on the surviving family members.

MRTA is popular among homeowners because it directly addresses the primary concern of paying off the mortgage in case of unforeseen circumstances.

Note that the MRTA functions as a decreasing term insurance, which means the outstanding mortgage balance decreases over time. In other words, as you pay down your loan, the coverage amount also decreases, reflecting the decreasing liability.

Here’s an example:

Imagine you have taken out a mortgage of $400,000 and simultaneously purchased MRTA coverage for the same amount. As you make payments towards your mortgage over time, the amount you owe the bank decreases. In this case, let’s say you’ve managed to pay off $60,000 of your initial mortgage. It means your remaining mortgage balance is now $400,000 – $60,000 = $340,000.

Since your MRTA coverage initially matched your mortgage amount, it will also decrease in tandem with your outstanding mortgage balance. As you continue to diligently make regular payments towards your remaining mortgage balance, your mortgage balance continues to shrink.

Suppose you successfully repay the full $420,000 balance in the future, thereby completely paying off your mortgage. At this stage, your MRTA coverage will reach $0, indicating that your mortgage has been fully settled and the insurance coverage is no longer necessary.

3. Level Term Assurance (LTA)

LTA is another type of mortgage insurance available in Singapore. Unlike MRTA, LTA provides a predetermined fixed sum assured (the amount of money your beneficiaries will receive upon your death) throughout the policy term. Regardless of the outstanding mortgage balance, the insurance payout remains constant (does not drop) in case of the policyholder’s death, disability, or critical illness.

LTA offers more comprehensive coverage than MRTA, as the insurance payout is not tied to the outstanding loan amount. This type of coverage can provide additional financial security for the policyholder’s family by offering a fixed sum assured that can be used to cover the mortgage and other financial needs.

Irrespective of the frequency or amount of your loan prepayments, with LTA, you will always have full mortgage protection of $500,000 until it expires at age 65, depending on your chosen policy option.

Comparison table: HPS vs. MRTA vs. LTA

Type of Mortgage Insurance	Home Protection Scheme (HPS)	Mortgage Reducing Term Assurance (MRTA)	Level Term Assurance (LTA)
Where to Get Insured?	Apply through myCPF Online Services	Private insurance companies	Private insurance companies
Covers HDB/Private Property?	– HDB: Yes   – Private Property: No	– HDB: Yes   – Private Property: Yes	– HDB: Yes   – Private Property: Yes
Coverage	Up to 65 years old or until the loan is paid; Decreases as outstanding HDB/bank loan decreases	Decreases as outstanding HDB/bank loan decreases	Remains constant throughout coverage duration
Premium	More affordable since coverage decreases with time (Can be paid with CPF savings from OA)	More affordable since coverage decreases with time	Relatively higher since coverage remains constant with time
Payout (in the event of an unfortunate event)	The outstanding housing loan, up to the insured sum	A lump sum payout will be provided by the insurer.	A lump sum payout will be provided by the insurer.

Is mortgage insurance compulsory in Singapore?

Mortgage insurance is something all homeowners should pay attention to, whether they own an HDB flat or private property.

HDB flat owners who are paying off their HDB home loans using their CPF OA savings are automatically covered under the Home Protection Scheme (HPS). It means HPS is compulsory for all HDB flat owners using their CPF funds to repay their home loans. It doesn’t matter whether they have taken an HDB loan or a bank loan.

However, HDB homeowners are not obliged to use the HPS and can replace it with private mortgage insurance if necessary. They can apply to be exempted from HPS as long as they have high coverage from any of the following insurance policies:

• Whole life insurance;
• Term life insurance;
• Endowment policy;
• Life riders attached to a basic policy; or
• Mortgage Reducing Term Assurance (MRTA) or Decreasing Term Rider, which adequately covers your outstanding mortgage amount.

For HDB flat owners who aren’t using CPF savings to repay their home loans, HPS is not compulsory, but they can still apply for it. They can manually apply for it or search for private mortgage insurers.

On the other hand, mortgage insurance is not compulsory for owners of condominiums and private properties. HPS doesn’t cover private residential properties, and HDB flat owners won’t have mortgage insurance by default.

Although mortgage insurance is optional, it is recommended to get your mortgage covered via private mortgage insurance, or MRTA. If you don’t get mortgage insurance and miss out on mortgage payments, you and your family might find yourselves without a roof over your heads in the worst-case scenario.

It means the bank can take possession of your property and auction it off to cover their losses from the home sale proceeds.

Is Mortgage Insurance the same as the Home Protection Scheme?

While mortgage insurance and the Home Protection Scheme (HPS) in Singapore offer financial protection for homeowners, they are not the same.

Administered by the CPF Board, the HPS is a specific type of mortgage insurance mandatory for HDB flat owners who use their CPF savings to finance their flats. It ensures the loan will be paid off, reducing the financial burden on the policyholder’s family.

Mortgage insurance is typically a broader category that protects homeowners and their families from the financial impact of unexpected events. It can come in different forms, such as MRTA and LTA. It can be purchased from different mortgage insurers in addition to the HPS provided by CPF.

Comparison: HPS vs MRTA Singapore

While both are mortgage-reducing insurances that protect your loved ones against losing their home, there is a key difference: HPS is tied to the property, whereas MRTA is tied to the policyholder. With HPS, you must get a new HPS plan if you buy a new home. With MRTA, your existing plan continues to cover you, even if you sell your property and buy a new one.

The below table highlights the other differences between HPS and MRTA:

Factor	Home Protection Scheme (HPS)	Mortgage Reducing Term Assurance (MRTA)
Payment Frequency	Yearly	Monthly, Quarterly, Semi-Annual and Annually
Premium Payment Method	Automatically deducts premiums from your CPF OA	Premiums can be paid in cash or using a credit card
Types of Ownership	Single ownership	Single or Joint ownership
Applicable Properties	Applicable to HDB (except EC/HUDC flats).	Applicable to all housing types.
Beneficiary	The sum assured is directly paid to HDB instead of the homeowner	The sum assured is paid to the policy beneficiary
Commencement of Coverage	Upon legal home ownership	Upon approval of home loan
Addition of Riders	No riders allowed	Extra riders like Critical illness and Premium waiver allowed
Transfer of Policy Coverage	Not transferable upon property sale. A fresh application is required when purchasing new housing, considering the customer’s age and health condition.	Transferable to a new property if you want to upgrade to a new home or sell your current one
Refunds	Does not permit refunds, as it is terminated upon loan repayment or sale of the home	May apply for a refund or a premium discount if no claims have been made by the time your policy ends

Benefits of MRTA over HPS:

The table above highlights some of the competitive advantages of MRTA when compared to HPS.

Cost Efficiency: MRTA offers joint policies that can be more cost-effective than government-backed HPS.

Lump Sum Cash Benefit: MRTA joint policies provide cash benefits in a lump sum format, differing from the HPS structure.

Transferable Coverage: MRTA coverage can be transferred between properties, while HPS terminates upon selling your home.

Inclusion of Riders. MRTA policies can include riders for personal accident, critical illness, etc., expanding coverage. Ensure these are not redundant with existing insurance.

Potential Refunds. MRTA policies offer rebates if no claims are made, yielding a return at the policy end. HPS lacks this feature.

Cost-Effective Alternatives. MRTA coverage can sometimes offer lower premiums and equivalent coverage compared to HPS. Exploring different policies can unveil cost-effective choices.

What is the difference between MRTA and LTA?

When considering mortgage insurance options, the pivotal choice between MRTA and LTA revolves around the balance between affordability and coverage.

MRTA vs LTA: The Key Distinction

The essential differentiator lies in cost dynamics. MRTA is the most cost-efficient mortgage insurance that supplements HDB’s HPS. MRTA’s coverage reduction aligns with your mortgage’s decreasing balance, resulting in relatively lower premiums.

For wider coverage, you might want to consider LTA instead, but it does come with a higher cost (i.e. premium). LTA maintains consistent coverage, potentially leading to higher premiums given its broader financial security beyond the mortgage commitment.

Choosing Wisely: Affordability vs. Constant Coverage

Selecting between MRTA and LTA hinges on your priorities. If managing costs is a primary concern and you prefer coverage tailored to your mortgage, MRTA stands as an attractive choice. Conversely, if maintaining consistent and comprehensive coverage beyond the mortgage is paramount, LTA provides steadfast protection, albeit at potentially higher premium costs.

Final Thoughts

In the intricate world of homeownership and mortgage financing, the decision to opt for mortgage insurance must be weighed carefully. Whether you see mortgage insurance as a necessary safety net or an extra expense depends on individual circumstances, risk tolerance, and existing insurance coverage. Therefore, making an informed decision requires a thorough assessment of your financial situation and goals.