Buying a property requires a huge commitment, and for most of us, it’ll be one of the biggest assets we’ll own.
And so, along with it comes another important element: protecting that property.
If you or your family isn’t able to make the mortgage payments because of unfortunate events, the place you call “home” might be taken away from you.
In this ultimate guide, we’ll cover all you need to know about mortgage insurance in Singapore. We’ll touch on various areas:
- What is it
- The different options available
- Whether it’s essential to have one
So, read on!
- What Is a Mortgage?
- The Implications of Having a Large Mortgage Loan
- What Is Mortgage Insurance?
- Is Mortgage Insurance the Same With Home Insurance?
- Who Provides Mortgage Insurance in Singapore?
- Top 5 Reasons Why You Need Private Mortgage Insurance in Singapore
- Types of Mortgage Insurance: Mortgage Reducing Term Assurance (MRTA) vs Term Insurance
- What’s Next?
What Is a Mortgage?
A mortgage is basically a home loan granted to you to purchase a property.
In Singapore, you can take a property loan from 2 sources:
- Banks such as DBS, UOB, OCBC, etc.
If you’re buying an HDB property, you have the option to get the loan directly from HDB or from banks.
However, if you’re buying a private property, you can only get a loan from banks.
As with all loans, there are interests charged on the outstanding loan amount, and they are known as mortgage loan rates. These rates vary from lender to lender, and they can either be fixed, variable, or a combination of both.
What’s important is that lenders require you to repay the outstanding loan together with interest on a monthly basis.
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The Implications of Having a Large Mortgage Loan
In land-scarce Singapore, it is a given that properties are expensive, and prices are typically in the range of hundreds of thousands, at the very least.
Furthermore, million-dollar homes are more common now.
The higher costs make property one of the biggest asset classes you’ll own. On the opposite end, this “asset” can also be a “liability”.
Why? Because of the huge housing loan you’ve undertaken.
If you’re unable to repay the monthly loan payments due to whatever reasons, the bank has the right to repossess your house and sell it off to recover the loan amount.
Would there be a place where your family can call home then?
That’s when mortgage insurance comes in.
What Is Mortgage Insurance?
A mortgage insurance eliminates a huge financial risk because it can pay out a lump sum if undesirable events happen.
What does it cover, you ask?
Typically, it covers death, and total and permanent disability. You also have the option to include coverage for critical illnesses.
The lump sum payout can then be used to pay off the outstanding loan amount and your family will continue to have a roof over their heads.
One thing to note is that there’s no cash value in a typical mortgage insurance. But in return, you’re compensated with a higher coverage amount at a lower premium.
Note: For clarity, I’ll be using “mortgage insurance” as a general term to describe insurance meant for mortgage loans. “Mortgage insurance” can consist of various instruments such as the home protection scheme, mortgage-reducing term assurance (MRTA) and level-term insurance. I’ll explain the differences soon.
Is Mortgage Insurance the Same With Home Insurance?
While both mortgage insurance and home insurance may mean the same to you, they do have clear distinctions in the insurance world.
As long as you have an outstanding HDB loan, you’re required to purchase the HDB fire insurance. The premiums are very affordable and it pay outs a sum of money if the internal building structure is damaged because of a fire.
If you’re staying in a condo, the fire insurance may have already been purchased by the management.
Because fire insurance protects just the basic structures, it does not cover everything else, including your personal belongings, furnitures, etc.
And that’s when home insurance comes in.
A home insurance or “home contents insurance” will be useful when something happens to your property (and its contents). It also provides payouts when other unfortunate events like earthquakes and floods, etc, happen.
On the other hand, a mortgage loan insurance is beneficial if something happens to you, instead. It provides a lump sum to offset your loan if you’re taken out of the picture.
Both can be important but there is greater emphasis on mortgage insurance because it’ll be more catastrophic if something happens to the income-earner.
Who Provides Mortgage Insurance in Singapore?
There are 2 main providers in Singapore: Home Protection Scheme (HPS) by CPF and the Private Insurance Companies.
Home Protection Scheme (HPS) by CPF
Home Protection Scheme (HPS) is provided to protect CPF members and their families from losing their HDB flat if death, terminal illness, or total permanent disability happens.
This coverage only lasts up to age 65 or till when the home loan is paid up, whichever is earlier.
You have to be insured under HPS if you want to utilise your CPF savings to pay for your monthly loan on your HDB flat. It doesn’t matter whether you’ve taken an HDB loan or a bank loan.
However, HPS doesn’t cover private residential properties, including Executive Condominiums (ECs) and HUDCs.
And if you’re only paying cash for the monthly loan repayments, then HPS is optional. But it is still highly recommended that you get HPS or a private mortgage insurance to protect yourself and your family.
To get a rough estimate of your HPS premium, visit this link from CPF website.
Likewise, with any application for insurance, you’ll need to fully disclose all information pertaining to your health, which is subjected to approval, and may still lead to rejections.
The good thing about HPS is that you can use your CPF Ordinary Account (OA) savings to pay the annual premiums. But if you don’t have enough in your OA when the premium is due, you can still opt to use cash.
Is there be a better option?
Sure, you can stick with HPS but most Singaporeans are looking for alternatives and the most common one is a private mortgage insurance.
And you can still be exempted from HPS if certain conditions are met:
Private Mortgage Insurance (From an Insurance Company)
With a private mortgage insurance, you’re able to get exempted from HPS, if you wish to.
If you’ve taken a bank loan for a private residential property, you can’t get HPS so the only option is to get a private mortgage insurance. This is usually not compulsory but it’s highly recommended.
The bank you got your loan from would usually recommend you to get a mortgage insurance underwritten by their partner.
- UOB partners with Prudential
- DBS partners with Manulife
In the end, you’re getting the mortgage insurance from the insurance company, and not from the bank.
The downside to this is that banks usually partner with just 1 company, and thus, you may not get the most competitive rate (you should get quotes from different companies). And there are other benefits (outlined later) if you were to source for your own.
Get a comparison of mortgage insurance from the top providers in Singapore.
Click here now.
Top 5 Reasons Why You Need Private Mortgage Insurance in Singapore
Of course, if you stick to HPS or with what you have currently, it’s perfectly fine.
That decision is entirely up to you.
But here are several reasons why Singaporeans choose to go for a private mortgage insurance:
1) Protects your biggest asset
Your home could be the biggest “asset” or the biggest “liability”.
If you have a outstanding mortgage loan and you’re unable to meet the mortgage payments, the lender (usually the banks) can repossess your house. To recover that outstanding loan owed, the lender can sell off your property.
This means that if you were to pass on, become permanently disabled, or critically ill, which potentially leads to not meeting mortgage obligations, your family might need to find another place.
Mortgage insurance will eliminate this risk, and be able to repay back the outstanding loan when something happens to you, keeping your home intact.
2) Eliminates the problem of properties being illiquid
Most people think they can sell off their properties and all their monetary problems will be solved. However, this may not always be the case.
Can your property be easily sold?
Months could have passed before you see any cash from its sale as time would be needed for advertising, conducting viewings, finding prospective buyers, etc.
Meanwhile, your family still needs to make the necessary monthly repayments, and they need ready cash for that.
Even if you can still find buyers, you might incur a net loss, especially in a market downturn or there’s a fire sale.
But what can you do? Your hands are tied and forced to sell.
With a mortgage insurance, as long as all relevant documents are provided on time, claim payouts usually take a few weeks or less. This removes any heavy burden on your family, and they need not go through hassles of selling the house.
3) Private mortgage insurance can be cheaper
When you apply for a mortgage, the banks would usually recommend you to get a mortgage insurance, but they are usually tied to just 1 insurance company. This means that you may not get the best deal available.
If you were to source on your own, you could find a cheaper alternative.
In addition, if you intend to get your own private mortgage insurance instead of HPS, the premiums can be economical too.
It really depends on several factors, but there are still additional benefits that come with having your own, even if it’s more costly.
If you’re wondering what would happen to your existing HPS, don’t worry, you can apply for an exemption (see the conditions in the HPS section above).
4) “Transferable” even when you upgrade or shift house
Singaporeans are very likely to upgrade their properties with time, especially when their BTO minimum occupation period is up.
Because HPS is a tagged to the HDB, if you upgrade or shift house, the existing HPS can’t be used again.
At that point of time, you’ll need to reapply or get another insurance, which may be more expensive because of you’re not getting any younger and your health may have deteriorated.
Even minor conditions like high blood pressure or high cholesterol can affect the chances of you being insured again.
With your own mortgage insurance, it can be “transferred” from one to another.
So, even if you sell off your property and buy another in the future, you can retain the same policy. And when you do that, you would’ve already locked in cheaper premiums at the earlier age you first applied.
5) Increased flexibility of coverage for different needs
Bankers would usually offer mortgage insurance with just the bare minimum covering death and total permanent disability.
Even in the Home Protection Scheme (HPS), it only covers death, terminal illness, or total permanent disability.
Are they enough? What about critical illness which may have higher probabilities of happening?
With your own private mortgage insurance, you can have the option to include critical illness coverage. And not just that, you can control the length of cover, and the option to increase coverage to include other liabilities or properties, among many other aspects.
Every one is different and so are their needs.
All sounds good?
There are 2 types of mortgage insurance that you must know…
Interested to find out which is the best mortgage insurance plan in Singapore? Click here now.
Types of Mortgage Insurance: Mortgage Reducing Term Assurance (MRTA) vs Term Insurance
Like the HPS, the sum assured (coverage amount) in MRTA reduces over time, and will eventually reach 0 when the plan’s tenure is up.
This is unlike a level term insurance where the sum assured stays constant throughout the whole period of the plan. It only ends when the coverage period is up.
There are pros and cons to each type of plan.
Below are some factors to consider before deciding which is the better option for you:
1) Intention to shift or upgrade your property in the future
As the sum assured of the MRTA reduces, if in the future you intend to change property, the sum assured of the MRTA plan may not be enough to cover the loan of the new property, leaving you with a shortfall.
At that point of time, you may either increase the sum assured or get a new MRTA plan. This brings about 2 sets of problems: higher premiums and insurability.
If you need to apply for a new plan or increase the sum assured, the premiums will be much higher due to age.
Furthermore, with age, health conditions are likely to happen. Would you still be able to get additional coverage? With serious conditions, most likely not, or it can cost that you might not be able to stomach.
2) Premiums of both plans
It seems like the MRTA’s premium should be cheaper than the level-term, right?
This is not always the case.
There can be instances where a level term is significantly cheaper because of greater competition in the level-term market and insurance companies phasing out mortgage-reducing plans.
But it still ultimately depends on your age, gender, coverage amount and period, etc. The only way to be sure is to get quotes and comparisons of different insurance companies.
Even if the premiums for term is slightly higher initially, do consider the fact that the coverage doesn’t get reduced, and over time, it becomes more economical.
3) Other financial responsibilities and liabilities
Usually when one intends to get a MRTA, only the loan amount of the property is considered – rarely anything else.
If you’re the type that doesn’t like to have multiple plans (harder to track) and like to lump everything in one, then a term insurance might be more suitable.
With a term, you can get a higher coverage on top of your property to account for kid’s education, loss of income, etc. So if anything happens to you, then other areas in life won’t be negatively affected by a lack of finances.
In the meantime, get an estimate of how much life insurance coverage you should have with our calculator.
Phew, that was a long one.
Hopefully, you’ve gained a sizeable knowledge on mortgage insurance in Singapore.
If you want to get the best mortgage insurance in Singapore, having a comparison (with quotes) of different companies will come in handy.
So, if you want to protect your biggest asset, and ensure your family retains it when uncontrollable events happen, take the first step by finding out which is the best mortgage insurance here.