Having or buying a property is a huge decision.
Other than for monetary reasons, it also contains happy memories of the past, present and the future, of you and your family.
You know what’s more important than that?
Protecting that property.
If that home was taken away from your family because of unfortunate events, how would you feel?
This ultimate guide on mortgage insurance in Singapore will give you everything you need to know.
We cover what is it all about, whether the reasons for it are justified, and many other crucial information that you must absolutely know.
So, read on!
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- What is a Mortgage?
- The Implications of Having A Huge 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 a HDB property, you have the option to get the loan directly from HDB or from the banks.
However, if you’re buying a private property, you can only get a loan from the 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 Huge 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.
And million dollar homes are a norm.
This make the property(s) one of the biggest assets you’ll own.
On the opposite end, this asset can be the biggest liability too.
Because of the huge housing loan you’ve undertaken.
If you’re unable to repay the monthly loan payments, the bank has the right to repossess your house and sell it off to recover the loan.
That’s when mortgage insurance comes in…
What is Mortgage Insurance?
A mortgage insurance eliminates a huge risk because it can pay out a lump sum if undesirable events happen.
What does a mortgage insurance cover, you ask?
Typically, it covers death and total and permanent disability. You can also add a critical illness cover (although not all insurance companies provide that option).
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 not having any worries on how to repay the housing loan.
One thing to note is that there’s no cash value in a mortgage insurance. But in return, you’re greatly compensated with a much higher coverage at a lower premium.
Note: For clarity, I’ll be using “mortgage insurance” as a general term to describe insurance meant for mortgage loans. It consists of the HPS, mortgage-reducing term assurance (MRTA) and term insurance. I’ll explain the differences soon.
Is Mortgage Insurance the same with Home Insurance?
While both mortgage and home insurance may mean the same to you, they do have clear distinctions in the insurance world.
A home insurance – some may know it as “fire insurance” or “home contents insurance” – will be useful when something happens to your property while mortgage insurance is useful if something happens to you.
The home insurance doesn’t just provide payouts in the event of fire but also in other unfortunate events like earthquakes and floods (increased occurrences lately, eh?), etc.
On the other hand, the mortgage protection insurance provides a lump sum to offset your loan if you’re taken out of the picture.
Both can be important but mortgage insurance may have a greater emphasis.
Home/fire insurance are much cheaper because the probability of property damage may be lower. It also may be less catastrophic compared to when something happens to you – 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 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.
This applies if you’re taking loans from HDB or even from a bank.
However, HPS doesn’t cover private residential properties including Executive Condomidiums (ECs) and HUDCs.
And if you’re only paying cash for the repayment of loans, 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 calculate a rough estimate for your HPS premium, visit this link from the CPF website.
Do take note that if you’re co-paying with your spouse, adjust the coverage percentage accordingly.
For example, if you’re paying 50% of the monthly loan amount, then put that percentage in. Do calculate separating for your spouse as the premiums would differ.
Likewise with any application for insurance, you’ll need to fully disclose all information on your health, which would be subjected to approval, and may still lead to rejection.
The good thing about HPS is that you can use your CPF Ordinary Account (OA) savings to pay for the annual premiums. But if you don’t have enough in your OA when the premium is due, you will still need to pay in cash.
(Read more about Home Protection Scheme here)
Could there be a better option?
Although you can stick with HPS as it seems to be the simpler option, most Singaporeans are looking for alternatives and the most popular one is to get a private mortgage insurance – reasons for this are outlined in the later part of the article.
With your own private mortgage insurance, you can also apply to be exempted from HPS (subjected to approval when certain conditions are met; see below picture).
Private Mortgage Insurance (from an Insurance Company)
If you’ve taken a bank loan for a HDB apartment, you’re still required to get HPS but you can still apply to be exempted from it if you were to get your own private mortgage insurance.
Now, if you’ve taken a bank loan for a private residential property instead, you can’t get HPS. It’s usually not compulsory for you to get any mortgage insurance either. But having said that, it’s still highly recommended that you get one.
The bank you got your loan from would usually recommend you to get a mortgage insurance which is underwritten by their partners.
- 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 the banks usually partner with just 1 company and thus, you may not get the most competitive rates (you should get quotes from different companies). And there are other benefits (outlined soon) if you were to source for your own.
There are 2 different types of private mortgage insurance – mortgage reducing term insurance and a level term insurance.
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Top 5 Reasons Why You Need Private Mortgage Insurance in Singapore
Of course, if you stick to HPS or with what you have, it’s perfectly fine.
The 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 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, your family might not have a place to call ‘home’ anymore.
The mortgage insurance will eliminate this risk and be able to repay back the outstanding loans 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 usually isn’t the case.
Would your property be easily sold?
Months would have passed before you can see any cash from the 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 still can find buyers, fire sales usually come with a net loss, especially in a market downturn.
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 timely, payouts usually take a few weeks or less. This removes any heavy burden on your family and they need not go through painstaking hassles of selling the house.
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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, the premiums that you potentially pay, could be cheaper than what your bank’s partner is offering.
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 different factors but there are still additional benefits that come with having your own, even if it’s more expensive.
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 pegged to the property, 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 will be more expensive because of your increased age, and your health conditions will be reassessed.
Even minor conditions like high blood pressure or high cholesterol can affect the chances of you being insured again.
With your own mortgage insurance, HDB or private properties are not tied with it and thus, can be ‘transferred’ from one to another.
So, even if you sell off your property and buy another in the future, you can use the same policy. And when you do that, you would’ve already locked in cheaper premiums at the earlier age you’ve 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 have higher probabilities of striking?
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, amongst many other aspects.
Everybody is different and so are your needs.
All sounds good?
There are 2 types of mortgage insurance that you must know…
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Types of Mortgage Insurance: Mortgage Reducing Term Assurance (MRTA) vs Term Insurance
Like the HPS, MRTA plans reduces the sum assured/coverage as time passes and eventually be reduced to 0 when the plan’s tenure is up.
This is unlike a 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 obviously 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 potential health conditions.
Needing to apply a new plan or increase sum assured, it’s almost guaranteed that the insurance premium will be much higher due to age.
Furthermore, with age, health conditions may appear or become worse. Are you then be able to get additional coverage? Most probably not, or it can come with a crushing price.
So if you intend to stick with your home for the good portion of your life, then perhaps, MRTA is the way to go. If not, do consider a term.
2) Premiums of both plans
As it seems, the premiums of MRTA plans should be cheaper than the level term, right?
This is not always the case…
There can be instances where term is significantly cheaper.
This is because of greater competition in the level term market, making the mortgage reducing plans obsolete.
But it still depends on your age, gender and the coverage period. The only way to be sure is to get quotes and comparisons of different insurance companies (luckily, you can easily get them here).
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 gets a MRTA, only the loan amount of the property is considered. Rarely including 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 is best suited.
With a term, you can get a higher coverage on top of your property to include things like kid’s education, loss of income for living expenses, etc. So if anything happens to you, then other areas in life won’t be affected and can still be accounted for.
Well, we can’t help it, right? As Singaporeans, it’s in our blood to be a little ‘kiasu’.
When the unfortunate happens, that little ‘kiasuness’ can very well go a long way.
Phew, that was a long ride.
Hopefully, you’ve gained a sizeable knowledge on mortgage insurance in Singapore.
If you’re still on the fence or want to know how much would mortgage insurance of different companies in Singapore cost, get your own personalised comparison. The comparisons come with quotes and premiums too.
So, if you want to protect your biggest assets and ensure your family retains it, find out which is the best and cheapest mortgage insurance here.