If you need a loan in order to buy a house, you approach a bank but while running you through their due process, they suddenly mention MRTA (Mortgage Reducing Term Assurance) and encourage you to buy it.
MRTA’s minimum tenure is five years but it is your prerogative on how many years you want to buy. For example, if you know, after detailed mortgage planning, that you can pay off your loan in 10 years, then you can opt to buy MRTA for 10 years and save a lot of money in premium payment.
But what is MRTA and what does it do?
MRTA is a type of insurance policy that allows the home owner to cover his loan tenure in the event of death or TPD (Total Permanent Disability). However, the person cannot claim the entire insured lump sum.
For example, if the person took a loan of RM200,000 and bought the policy to cover that amount but as paid RM100,000 so far, the insurance company will only pay the outstanding amount (what has yet to be paid by the owner) owed to the bank should the insured suffer from TPD or death.
Although MRTA’s coverage is limited, it is still encouraged to buy it as it protects your home. Should anything happen to the owner, knowing that the insurance company will then handle the outstanding housing loan will free up the burden of additional finances for the family.
Additional coverage never hurts and as you can pay the premium in full to cover the whole loan tenure, MRTA compared to other policies, is really cheap. If you’re unable to pay the full amount, you can choose to finance the premium into your housing loan.
However, this will increase your loan instalment as you will be paying more interest to the bank.
Also, the amount of the premium you are to pay is dependent on several factors; your age, the loan amount and the loan tenure, thus it is likely you’ll have a higher amount to pay if you’re older.
If you and your spouse are both taking a loan each, you can opt for 100% or 50% coverage per person on the loan amount.
Additionally, if you already suffer from an illness, the insurance company reserves the right to reject your application or may add extra factors into the premium. This of course, depends on the severity of the illness.
You’ll most likely be examined by the company’s panel of doctors first though.
Whether it is compulsory to purchase the policy depends on the bank you are applying your loan with. Some might waive this requirement while others require you to must purchase MRTA. There are some instances where the banks increase the interest rates if the borrower chooses not to purchase MRTA.
But whatever your choice, make sure you do not get caught off guard. Always ask and if the bank tells you it’s not necessary, make sure there are no hidden costs meant to penalise your choice. Also, inquire about MRTA should you sell or refinance your house before the end of the loan tenure.
Disclaimer: The information is provided for general information only. PropertyGuru International (Malaysia) Sdn Bhd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.