Your home loan might be the biggest commitment (and potential liability) you'll have in your life, although of course, owning a home can also be a big asset.
So while we all take precautions to mitigate healthcare costs with health insurance, why wouldn't we think about taking out a home loan insurance to protect us in situations where we might not be able to pay for it?
What Is Home Loan Insurance?
If you have a home loan, a home loan insurance (also known as mortgage insurance) protects your family from losing your home if you were to suffer premature death.
This ensures that your family can stay in the same house and not worry about making repayments on your home loan. This type of insurance is especially useful if you have dependents.
For those of you who are buying an HDB flat and are using your CPF to pay for your home loan, it is compulsory to be insured under the Home Protection Scheme (HPS).
The HPS is not compulsory if you are using cash to pay off your loan but you can definitely opt-in. Do note that executive condominiums (ECs) cannot be insured under the HPS.
For those who own a private property, a home loan insurance is optional but you might want to consider it for the following reasons.
Do You Have Dependents?
If you have a home loan, it's probably safe to say that you are one of the major contributors of your household income.
If you have dependents in your family, such as young children or aging parents, would they be able to pay off your home loan if something unfortunate were to happen to you?
Will paying for the house become a heavy financial burden for them on top of other costs they'd need to shoulder?
Similar to a life insurance, a home loan insurance ensures that if you are hit with a terminal illness or fatal accident, family members will continue to have a roof over their head without additional financial payments.
Some people may think that their family can simply sell off the property if the loan becomes too expensive to repay, but this is not as easy as you may think.
The potential problem is that selling off the property immediately may mean suffering a loss. Also, finding a suitable buyer takes time and the administrative work can be a long process.
Here you can read more about selling your property in Singapore.
In Singapore, a home loan insurance is commonly called a Mortgage Reduced Term Assurance (MRTA). Under MRTA schemes, there are different types of coverage, such as single, joint or dual coverage.
For example, if the mortgage loan is paid off by two people, joint coverage under MRTA schemes will take care of the outstanding mortgage if either party dies prematurely, suffers from a terminal illness or becomes permanently disabled. The second owner will not need to pay for the remaining amount of the home loan.
Some people may feel that taking up a home loan insurance is an additional cost on top of the home loan itself, but as with all other types of insurance, you are preparing for the unexpected.
You also need to consider that private properties are pricey and without a home loan insurance, you are risking a loss of an asset you have paid for a number of years, as well as the loss of a home and shelter for your loved ones. Thus, getting a mortgage insurance can be a prudent choice.
If you're planning on buying a property in Singapore and looking for the best home loan, take a look at our guide to home loans for first-time buyers.