Mrta Vs Mlta Which One Is For You

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Recently, you have purchased a house and you cannot seem to decide between Mortgage Reducing Term Assurance (MRTA) or Mortgage Level Term Assurance (MLTA). Investing in a house is the biggest ticket and commitment made by many individuals and many Malaysians aspire to make their homeownership come true. Due to the size of the amount, there are some potential risks that you will need to go through. For instance, what happens to your family should something unfortunate happen to you? Who’s going to continuing to service your mortgage installment? Some questions to ponder. In this guide, we are going to share with you the details of two most common options that’s available for Malaysian homeowners.

On Mortgage Reducing Term Assurance (MRTA)

Mechanism

MRTA, by far, is the most popular and economical option for property loan borrowers and is usually packaged as an option when applying for a home loan at a bank. A single premium group term life insurance that pays your outstanding home loan in event of your death or total permanent disability (PTD).

The ‘reducing term’ means your coverage will gradually reduce in line with your outstanding loan till it reaches zero at the end of the tenure. However, in the event of your death/TPD, the benefits derived from this mortgage insurance will go directly to the bank to settle your outstanding loan and your family members will not receive any cash benefit from it as the bank is serving as the beneficiary of MRTA policy.

While you have the option to select the coverage amount and tenure of your policy and your premium will be charge based on your age, gender and other factors. Premium is paid up-front as a lump-sum. Most homebuyers top up this amount to their mortgage value as most banks offer a goodie of a lower interest rate on your home loan. You can also opt to buy later but you will need to have sufficient money to pay off lump sum premium on your own.

Cons of MRTA

1. The loan settlement goes directly to your bank and your family will have no control over it. Even if the loan is settled, your house could remain frozen under the state until all your income tax, legal and accounting expenses are settled.

2. MRTA coverage below home loan amount should take note that their MRTA will be affected by fluctuations in interest rates.

3. There are few incidents where the banks calculated too low of interest rate when selling MRTA policy to their clients - interest rate used for MRTA calculation should be higher than your home loan interest rate. Due to that, the increased in bank interest rates over the years has made actual outstanding loan higher than the projected outstanding loan. Thus, policyholders have no choice but to pay the balance.

MRTA is for you, if:

1. You plan to keep the house for long term and have no financial dependents

2. You are on a budget leash and already own medical insurance

Where to purchase MRTA?

Banks, where banks will highly recommend you to opt for MRTA. Fret not, because MRTA is not a compulsory mortgage insurance. Do not feel pressured or obligated to purchase MRTA, in fact, check out or survey other options that’s available in the market.



On Mortgage Level Term Assurance (MLTA)

Mechanism

MLTA offers repayment of your outstanding home loan as well as guaranteed cash value back at the end of the scheme. Cash benefit will help keep your family afloat in the event of your death or total permanent disability (TPD). Anyone can be a beneficiary for MLTA, policy holder can nominate any family member to receive pay out if anything happen to him or her.

MLTA’s sum assured remains constant or level throughout the policy’s tenure period. Most importantly, the mortgage insurance is that the insurance proceeds are credit-proof and will not be frozen. MLTA is a complete protection with additional saving, optional riders and even policy returns on premium to fulfil your family’s financial necessity.

Once it is paid off to the bank for the outstanding mortgage amount, the insurance company will pay whatever money leftover (including returns on investment if the policy is investment-linked) in the form of cash payout to the policy’s beneficiary. Most MLTA provide option that includes medical rider for critical illnesses too, providing further protection. You can also surrender this mortgage insurance’s policy at any time with a guaranteed surrendered value mentioned in your policy paper.

Cons of MLTA

1. Because of the extra facilities, it comes at a price of higher premium which can be paid periodically over tenure of the mortgage on periodic basis.

2. Age plays a role in MLTA like life insurance, the higher the age, the higher the premium will be. You will pay more in long run if you buy MLTA later after purchasing your house.

MLTA is for you, if:

1. You are the sole breadwinner of the family and have several dependents or commitments.

2. You have the intent to keep the property for short term or for investment.

Where to purchase MLTA?

Most insurance companies offer MLTA as it is a hybridof life mortgage insurance offering you both protection and savings.

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