Wednesday, November 3, 2010

Mortgage 101 - What is MRTA?

Mortgage Reducing Term Assurance (MRTA) is also frequently referred to Mortgage Insurance. MRTA helps to settle the housing loan in the event something happens to the borrower.

So, what is the "something"? Normally the claimable events it covers are Death and Total Permanent Disability (aka TPD) only. If the borrower wants to extend the coverage to 36 Critical Illness, the premium will be much higher.

MRTA is a form of Term Life Insurance, it has the following features:
  • Term is pre-fixed e.g. 10 years or 20 years
  • It is Reducing i..e the coverage is high in year 1 and getting lower each year and become NIL by end of the term.
  • It required a single lump sum payment of premium
  • It is encourage by bank to be financed into the loan (so bank earns more interest)
  • The beneficiary is the Bank. The Borrower benefits indirectly as the property will be fully redeemed upon occurrence of claimable events. Assuming no top up loan during the whole period of loan and all installment paid on time and no increase in BLR.





If you were asked to buy MRTA, and you also want to save money and ask for better rate from the bank, ask the banker these questions:
  • How can I get waiver or exemption (if you really don't need MRTA)
  • Can I insured for less than the loan period?
  • Can the MRTA premium be projected based on a lower interest rate? (so effectively the premium is lower too)
In short, the whole purpose of MRTA is to have a dedicated protection on outstanding mortgage (aka debt cancellation program) and not a making money program, therefore, it will depends on how much and to what extend the debt need to be cancel in the event of "something" happens.