MRTA & MLTA: Understanding the Main Differences
If you’re planning to purchase your first home or to buy any type of property, you’ll be required to buy a Mortgage Assurance. This is an insurance coverage that will pay off the remainder of your property loan or home loan if something happens that causes you not to be able to complete payments, perhaps due to permanent disability or death.
Many home buyers tend to get confused between these two types of mortgage assurance, namely Mortgage Reducing Term Assurance (MRTA) and Mortgage Level Term Assurance (MLTA).
In this article, we’ll be looking at how both of these policies work, and how you can choose between them.
What is a Mortgage Assurance?
Before we tackle anything deeper, we have to understand the umbrella term ‘Mortgage Assurance’. This is basically an insurance that will pay off the remainder or outstanding amounts of your home/property loan if anything happens to you before you can finish paying them. These untoward incidents include total permanent disability or death.
A mortgage assurance has many benefits, the main one being that your family will not be burdened by any housing or property debts upon your passing. This is especially important if the housing loan is tied to the house that your family is currently living in.
It will ensure that your family has a place to stay when you’re gone, and won’t lose their current home if it’s still being paid for. This is important as home ownership cannot be transferred unless all loans have been cleared first. Therefore, you want to ensure that your home is transferred firmly to your loved ones for their safety and financial security.
Although Bank Negara Malaysia doesn’t actually make mortgage assurance a necessity for property owners, most banks would prefer that you have one before they approve your property loan.
In Malaysia, you’re allowed to obtain your mortgage assurance independently from the lender or bank who is providing you the housing loan.
Now let’s look at the two types of mortgage assurance you’ll encounter in Malaysia
What is MRTA?
A Mortgage Reducing Term Assurance or MRTA is an insurance coverage meant for those taking property financing. It offers a decreasing sum insured over time, meaning that the longer you pay back your loan and the less loan you have left, the less is insured.
It is therefore specifically designed to pay off the remainder of your loan, and no more than that. The amount insured will become zero at the end of your loan tenure. MRTAs have lower premiums and are more affordable than the other alternative which is MLTA.
Usually, banks and other lenders will offer the MRTA together with the property loan that you’re applying for. At the same time, premium payments are done together with the monthly loan repayments for your convenience.
Additionally, we should remember that MRTA policy are absolute assigned to the banks, so you have no ownership of any part of the policy or its benefits, making it rather inflexible. MRTAs also cannot be transferred to anyone else.
What is MLTA?
A Mortgage Level Term Assurance or MLTA is similar to an MRTA in the sense that it also pays off any outstanding home loan you may have. However, it offers a constant sum assured over time. No matter how much of your loan has been paid, the amount assured is not reduced.
There is an added savings and cash value with the MRTA. In the event that anything untoward happens, the payout from the MLTA won’t just cover the outstanding home loan that’s left, there will be a portion of it that will be given to your nominated beneficiary. This can be your spouse, children or parents.
The MLTA offers this added advantage of providing financial support and protection for your family when you can no longer be the breadwinner of the family. This is in addition to ensuring that the housing loan is paid off and they have a safe place to live in.
The MLTA is also a policy that is purchased separately from your loan provider or the bank, as usually the MLTA cannot be bundled together with your loan repayments. You will have to pay it separately from your loan repayments, which can mean a little more work.
However, another plus point for the MLTA is that it can be transferable to any other property. This means that if you’ve finished paying the loan on one house and want to purchase another property, the MLTA can be used on your second property too, without the need to go through much of the checks that came with the first round of MLTA purchase.
Which One Should I Choose?
The answer to this depends on your current situation and needs. If you do not have any dependents, or if your loved ones are financially independent and you do not need to worry about their financial security or providing them with a house or property, then the MRTA is sufficient for you. .
However, if you want added financial security for your loved ones and want to give them a financial cushion to adjust after something happens to you, then a MLTA is a better choice.
This is because for the MLTA, even though the amount you owe the bank decreases, the amount that is insured does not change and therefore functions as a sort of savings with a guaranteed fixed cash value. This payout will benefit your nominated beneficiary in addition to the lender that you owe money to.
How Much does an MRTA and MLTA cost?
In general, both the MRTA and MLTA’s premiums depend on several factors. These include your age, health condition, amount of home financing insured and the tenure of that loan repayment.
Your premiums will increase under several conditions, including if you have a health issue or if the home financing you’re taking is larger. However, upon finishing the repayment tenure of the home loan, the MLTA will pay out to you the savings portion that you’ve accumulated whereas for the MRTA you will not receive anything.
Pursuing the Right Mortgage Assurance
Insuring your home insurance is a must, but you should also consider having a savings option too. The basic insurance is of course the MRTA which only pays the lender any outstanding loan you owe them.
There’s now the MLTA which will assure the same amount, usually the value of your home financing, throughout the tenure and you or your nominee will enjoy a cash value payout when the time comes.