Selection of flat? Checked. Downpayment made? Checked. Now that you and your partner are proud co-owners of your new house, it’s time to think about who should be getting the mortgage insurance, or even the type of mortgage protection to get.
Types of mortgage insurance
If you are a first-time homeowner, preparing for what is most likely the biggest purchase of your life can be overwhelming. With most of your time spent on drawing up renovation plans or choosing your home loans, who has time to think about mortgage insurance? What more the type?
Yet, mortgage insurance is so important that it is compulsory for HDB buyers to have some form of it. Why? Because it prevents you or your loved ones from losing your home or getting saddled with debt by paying your remaining mortgage if any of the co-homeowners pass away unexpectedly.
For this reason, all HDB homeowners are required to be insured under the Home Protection Scheme (HPS), a mortgage-reducing insurance that is mandatory if you are paying for your monthly housing loan instalments through CPF. Unless, you have one or more of the following policies:
- Private mortgage insurance
- Life insurance
- Life riders (must be attached to basic policy). For instance, the Death and Total and Permanent Disability supplementary rider that can be attached to GIGANTIQ
The policies must cover the full term of your housing loan or up till you are 65 years old, whichever is earlier, in the event of death, terminal illness or total permanent disability before you can be exempted from HPS.
While not compulsory for HDB buyers who are not using their CPF savings to pay off their housing loans, opting in to HPS or getting some form of mortgage protection is still very much recommended, thanks to the exorbitant cost of housing in Singapore.
HPS, private mortgage insurance or life insurance?
With most people being automatically enrolled into HPS, you might wonder if it’s worthwhile getting private mortgage insurance or life insurance and applying for an exemption.
If your prioritise convenience, perhaps not. But if price and flexibility are your top concerns, then that’s a different story. Here are some reasons why private mortgage insurance or life insurance could prove to be more beneficial instead.
1. Potentially lower premiums and better value
If you are buying a HDB flat with your partner or family member, and opting for HPS, each of you will have your own policy with your own coverage, which you will have to pay for individually.
For example, HPS will issue two policies, each with a default coverage of 100%. If you don’t change anything, it’s easy to end up paying for more than you need.
Private mortgage insurance also offers more value with riders such as additional critical illness cover, as opposed to HPS which focuses purely on basic mortgage protection.
If you are deciding between life insurance and mortgage insurance, here’s something to consider as well.
Both HPS and private mortgage insurance are Mortgage Reducing Term Assurance (MRTA) policies, in which coverage decreases as time goes by (as you pay off more of your loan) while the premium remains the same. For life insurance however, both coverage and premiums remain consistent throughout the policy period.
#TiqOurWord Riders are a good option if you want greater peace of mind. For example, ePROTECT mortgage by Etiqa Insurance comes with an optional eXTRA secure waiver that lets you continue the policy without paying premiums if you are diagnosed with a critical illness.
2. Flexibility of payouts
With HPS, the proceeds of the policy goes directly to HDB should something unfortunate happen. Meanwhile for private mortgage insurance and life insurance plans, the full lump sum is paid out to you or your
This provides flexibility of managing the funds for pressing needs, e.g. costly cancer treatment, childcare expenses, etc. instead of restricting it solely to repay the housing loan. The remaining spouse can also choose to partially replay the loan by lowering the monthly repayment to his/her sole income and still have cash on hand.
3. Continuity of policy
Property flippers, take note. If you foresee yourself selling your house once you fulfil the Minimum Occupation Period (MOP), you might want to consider going down the private insurer route instead of opting for HPS.
HPS is tied to the property and ends once you sell your flat or when the loan has been fully repaid. If you get a new flat, you will need to apply for a new HPS policy again.
Private mortgage insurance or term life insurance, however, is tied to you, the individual and allows you to transfer it to your new property, regardless of whether it is HDB or private. Remember, life insurance follows the person and not the property.
This makes a huge difference if you are planning to upgrade your property in future. You can leverage on your term life insurance for subsequent properties. As premiums are usually based on your age (and health condition) at the time of application, sticking to one policy would be more beneficial financially as it allows you to lock in a cheaper premium. Note of caution: do ensure you have sufficient coverage for life protection (i.e. disability and death) aside from mortgage protection.
Joint vs separate insurance
Once you have decided to go for private insurance, the next thing to think about is whether to go about it together or fly solo with your own separate policies.
It depends, are you in a joint ownership or tenants-in-common?
Say what? Let’s break down the jargon.
When you are in a joint ownership (most likely the case between couples purchasing a house together), you and your co-owner own 100% of the property together and neither can identify a specific share of the house that you own. When one of you dies, the ownership of the house cannot be transferred to someone else who is not part of the joint ownership.
Things may also turn tricky when you throw the Total Debt Servicing Ratio (TDSR) rule into the mix, which disallows an individual to have debt exceeding 60% of their gross monthly income.
For this reason, it is important for ALL co-owners to be well-insured, to prevent the situation where the surviving co-owner loses the property or is forced to sell it at a loss if they cannot finance their partner’s portion of the loan repayments.
When you are in a joint ownership, you are in it for the long haul (property-wise). It makes sense then to opt for a joint mortgage insurance policy since your coverage needs for the house are identical and premiums are potentially cheaper. On top of that, proceeds automatically go to the co-purchaser if one of you passes away.
The remaining survivor will own the entire house, and the remaining mortgage loan in its full entirety.
If you are holding a property as tenants-in-common, that means each person owns a fixed percentage of the property that is distinct and transferrable to their beneficiary (who may not be the co-owner) upon death. Meanwhile, there are no changes to the remaining co-owner’s share of the house.
Some couples opt for this, to lower stamp duties when purchasing their next property, but this is usually more common when you purchase a property with a business partner or friend, for example.
In such cases then, separate policies to cover your own individual share of the mortgage may work better as each co-owner’s part of the property can be sold off separately. Joint policies may also prove to be a hassle (and a loss) if you decide to part ways eventually.
TL;DR: Get mortgage insurance
With the plethora of options available, it may be tough deciding which course of action suits you best. But one thing is for sure. As long as you’re paying for the house, no matter the amount, you will need some form of mortgage protection. Click here to get started today.
Information is accurate as at 25 February 2021. This policy is underwritten by Etiqa Insurance Pte. Ltd. (Company Reg. No. 201331905K). Protected up to specified limits by SDIC. As buying a life insurance policy is a long-term commitment, an early termination of the policy usually involves high costs and the surrender value, if any, that is payable to you may be zero or less than the total premiums paid. You should seek advice from a financial adviser before deciding to purchase the policy. If you choose not to seek advice, you should consider if the policy is suitable for you. This advertisement has not been reviewed by the Monetary Authority of Singapore.
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