Mortgage insurance, also called Mortgage Reduced Term Assurance in Singapore, is a form of protection for home owner (i.e. borrower or person who obtains the loan) and the family to continue servicing the loan if the home owner dies or is incapacitated. It aims to relief the other family members from having to face the financial stress of servicing the loan when the borrower, who is frequently the sole bread-winner, could no longer do so. The main purpose is to avoid the situation where the property is being sold by the lender or the family member to pay off the loan and the family members end up not having a place to stay.
When a loan is obtained to buy a Housing Development Board (HDB) residential apartment and you are servicing your loan via CPF account, your apartment is covered by Home Protection Scheme (HPS). With HPS, the outstanding loan will be paid by the CPF Board if the home owner dies or is incapacitated.
Home owners of private properties usually have to buy a separate mortgage insurance to protect themselves from having to pay the outstanding mortgage loan repayment in the event of death or permanent disabilities.
Executive condominium does not fall under HDB public housing and therefore cannot be insured under the HPS. As such, a separate home mortgage insurance has to be bought.
Do not confuse mortgage insurance with fire insurance and home content insurance. Mortgage insurance protects you and your family from having to pay off your loan when unfortunate event occurs while fire insurance and home content insurance protects you from damages and losses due to other events.
Should you take up a Mortgage insurance?
In order for you to decide if a mortgage insurance is necessary, you have to ask yourself these questions:
- In the event when the borrower can no longer generate an income, can someone else in the family continue to pay the monthly mortgage instalment?
If your answer is “no”, you should buy the mortgage insurance as soon as possible. If your answer is “yes”, you should ask yourself the next question.
- Can your family continue to service your monthly repayment of loan on the property without substantial negative impact on their quality of life?
If your answer is “no”, you should seriously consider getting a mortgage insurance.
How People Suffer without Mortgage Insurance?
Home owner who was the sole bread-winner of the family, was involved in a car accident which left him permanently disabled. He was lucky to be protected under the home mortgage insurance and hospitalization insurance and the financial impact on his medical treatment and loan repayment is fully covered.
Our house or apartment may be our greatest investment to hedge against inflation, to provide shelter and place to live in and to celebrate many moments together. However, in times of mishap, it may also be the greatest liability of the family. A family unit needs to be secured at all times and the beauty of mortgage insurance is that even when you die, the family house or apartment will be paid.
Besides Mortgage Insurance, you should also consider the following Home Insurance Coverage:
- Fire Insurance
- Empty House Insurance
- Pet Insurance if you are worried that your pet will not be covered when something happens at home
- Landlord Insurance if you are renting out your spare property