Buying a property is a huge decision.
For most, it’ll be one of the biggest assets you’ll own.
And so, it brings about another important element: Protecting that property.
If that home was taken away from your family because of unfortunate events, how would you feel?
In this ultimate guide, we’ll cover all you need to do on mortgage insurance in Singapore.
- What is it
- The different options available
- Whether it’s essential
- … and many more
So, read on!
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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.
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 becoming more common.
This makes the property(s) one of the biggest assets you’ll own.
On the opposite end, this “asset” can also be the biggest liability too.
Because of the huge housing loan you’ve undertaken.
If you’re unable to repay the monthly loan payments due to unfortunate circumstances, the bank has the right to repossess your house and sell it off to recover the loan.
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 a mortgage insurance cover, you ask?
Typically, it covers death and total and permanent disability. You do have the option to include coverage for critical illness.
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 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. “Mortgage insurance” consists of 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 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 useful if something happens to you. 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.
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 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 calculate a rough estimate for your HPS premium, visit this link from the CPF website.
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.
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 that’s why you’re able to get exemption 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’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 that you got your loan from would usually recommend you to get a mortgage insurance 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 later) if you were to source for your own.
Get a comparison of mortgage insurance from the top providers in Singapore.
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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 may not always be the case.
Can 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.
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 several 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 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, 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…
Interested to find out which is the best and cheapest mortgage insurance plan in Singapore? Click here now.
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 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 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 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 may appear. 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
It seems like the premiums of MRTA plans 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.
This is because of greater competition in the level term market, making mortgage reducing plans obsolete.
But it still ultimately depends on your age, gender, coverage amount and period. 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 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 account for 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 catered for.
If the unfortunate happens, the higher coverage amount will go a long way.
In the meantime, get an estimate of how much life insurance coverage you should have with our calculator.
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 mortgage insurance rates and quotes.
So, if you want to protect your biggest asset and ensure your family retains it, find out which is the best mortgage insurance here.