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Mortgage Reducing Term Assurance (MRTA) – Why Would You Need It?

May 31st, 2013 Leave a comment

If you’re taking a home loan to buy a property, chances are: you’ll be required to pay for Mortgage Reducing Term Assurance, or MRTA, by the bank as part of your loan arrangement.

And if you’re one the tens of thousands of first-time home buyers out there who are wondering why you need to fork out precious Ringgit to pay for this home loan insurance, allow us to shed some light on MRTA and what it means to your home loan deal.

What Is MRTA?

MRTA is an insurance policy that provides financial protection for home loan borrowers and their families. Specifically, MRTA helps settle outstanding home loan amounts in the event of death or total disablement of the borrowers.

Why Would You Need MRTA?

MRTA is essentially a protection mechanism for all people with home loans, and especially for households with sole bread earners.

Generally, in the event of untimely death or disability of a home loan borrower (significantly if he or she is the main income earner), the greatest problem facing surviving households is their ability to pay off the remaining home loan. In many instances, the surviving family members may even need to sell off the property at less-than-competitive price just to pay off the outstanding amount.

By signing up for MRTA, surviving family members will not be left with such burden because MRTA covers part or all of the unpaid portion of a home loan.

How Does One Apply for MRTA?

In Malaysia, home loan applicants do not need to go out of their way to find an MRTA provider because MRTA is usually incorporated as part of the home loan application process. Commonly, you’ll only be required to pay a single MRTA premium. You will not need to pay a premium again throughout the entire duration of the policy.

Important Considerations for MRTA

Like any other insurance policies, MRTA has a specific insured amount as well as policy duration. Bear in mind that in the event of death or permanent disability, MRTA would pay off ONLY the amount that is covered, within the time, as dictated by the policy. It does NOT pay for everything that the insured owes to the bank.

Due to the above reason, home loan applicants are generally advised to purchase MRTA based on your specific requirements (instead of just going for the cheapest policies available). For sole bread earners, buying maximum coverage is especially recommended despite a heftier premium, because your families are more at risk should anything happen to you. For households with multiple income earners, you may consider opting for a policy with lower coverage.

This article comes courtesy of www.imoney.my which compares between the various loans, savings and insurance schemes available in Malaysia.

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  1. Unker Ho
    May 31st, 2013 at 13:19 | #1

    My banker teach me 8 years ago..

    MRTA = Mati Rumah Tentu Ada

    hahahha

  2. PGK
    May 31st, 2013 at 15:12 | #2

    If we were to complete our loan earlier than expected, do we get back the sum insured for the years? Example, initially MRTA boughtbfor a 30 years loan, but somehow we finish the loan at 10 years, what happen to the 20 years MRTA?

  3. Elmo
    May 31st, 2013 at 16:15 | #3

    Mortgage Reducing Term Assurance (MRTA) will reduce based on amount of loan. Mortgage Level Term Assurance (MLTA) is better as the amount insured always the same..doesn’t reduced based on the reducing on your loan. Lots of people unaware of this.

  4. valkjr
    May 31st, 2013 at 17:24 | #4

    New buyer should apply for MLTA rather than MRTA…in the end of loan tenure, cost for MLTA will be refunded back to you rather than burnt away. Different insurance agent provide different benefits. Moreover, bank offering MLTA also sourcing from insurance company…But overall, MLTA cost is much higher + better benefits…E.g MLTA for a property around RM 400k, will cost min amount of RM 200+ per month for the duration of loan tenure…try to source around for a better MLTA package.

  5. Bryant
    May 31st, 2013 at 21:10 | #5

    @PGK

    There is a surrender value. Check with your respective agents.

  6. YC
    May 31st, 2013 at 22:15 | #6

    Yes, for new buyer…try to consider MLTA as an option too…

  7. PP
    June 1st, 2013 at 14:41 | #7

    @PGK

    You can ask for refund for your balace of 20 years MRTA. Or you can choose to continue for the rest of 20 years. MRTA is to proctect your outstanding loans, they have a fix outstanding amount every years, regardless you make extra payment or not.

    For some ppl, they bought their own term insurance instead of MRTA or MLTA. eg, your property is worth RM500k, they bought life term insurance for RM500k. I don’t which one is cheaper, but bank will encourage you to buy MRTA because you can use 5% of your properly value to purchase MRTA and include into your loans. So you can borrow up to 95% of your property(5% must be MRTA amount). IF your MRTA more than 5% of your loan amount, you have to top up with cash.

  8. Sunhill
    June 5th, 2013 at 14:09 | #8

    I didn’t buy any MRTA or MLTA but my 360L loan still approve!

  9. Elmo
    June 5th, 2013 at 15:08 | #9

    Loan can be approved without MRTA or MLTA. But the risk is if anything happened to the borrower, immediate family will have to bear the outstanding loan.

  10. Louis
    June 5th, 2013 at 21:54 | #10

    Hi everyone, kindly call/email me if u need MLTA plan details.
    Email : louiswaw@yahoo.com
    Hp: 0124218660

  11. Block_R
    June 10th, 2013 at 14:23 | #11

    First of all, nothing is free. You can’t say MLTA is better than MRTA or vice versa. It depends on your circumstances.

    MRTA is normally single premium but could be limited pay as well, i.e. 20 years coverage but 15 years premium payment. Most have surrender value in accordance with regulation and/or company policy/design.

    MLTA is similar to term insurance and can be designed with premium refund at coverage expiry. Obviously premium is more expensive with premium refund.

    No one likes to highlight this but the agents and banks will receive commission as a % of premium. For the agents, it’s their livelihood. For banks, it’s additional profits for them.

    How to compare? It depends on you. Some people like convenient, go for single premium if you prefer one-time payment and forget about it. If you like some money back at expiry, go for premium refund benefit.

    In some markets, joint lives term policies are popular where it covers first-to-die (policy will pay if your spouse or you mati dulu, so the survivor has less worry about the outstanding loan) or last-to-die (design varies and suitable for couple who can continue to pay the loan even when one member mati). Premium will be cheaper for the latter.

    It’s not compulsory to buy coverage to get loan. Both my wife and I have loans without any coverage. In the event of death, you can still sell the property (though with time lag) to clear the loan. The coverage is especially useful when you want to leave a roof over the heads for your loved ones in the event of death.

    I am NOT saying coverage is unnecessary. These types of coverage have their usefulness. In the event of any death, there is a lost in source of income to support family. The coverage will provide financial support to the family concerned. Term insurance (which these mortgage falls under) is the cheapest form of insurance coverage available in the market. I know some people says PA is cheaper but please note that PA is payable on accidental causes. A heart attack is not accidental and PA policies will not pay. Read the terms and conditions carefully especially the conditions that will allow you to claim any benefits.

    Got to get back to work now, will write next on how to compare financially between MLTA and MRTA :)

  12. Brad
    Brad
    June 23rd, 2013 at 00:38 | #12

    That is true. Everything has its pros and cons. Really depends on individual risk appetite. If you need more information on MRTA or MLTA, feel free to contact my cousin at 017 4096233.

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