Avoid losing your home

The Star

2 days ago

PETALING JAYA: Going by market reports, Malaysia's property transactions last year hit its highest levels over the past decade.
According to the National Property Information Centre's Property Market Report 2024, the number of property transactions rose by 5.4% to 420,545 last year.
That leads to the question: Are Malaysian home buyers getting financial protection for their mortgage?
It is not mandatory for house buyers to purchase mortgage insurance, but getting one could protect them and their families from ending up homeless, said insurance professionals.
'This is to avoid adverse unforeseen circumstances that can land homeowners and their families in financial hardship,' said senior insurance consultant Leonard Tan.
He explained that when a housing loan is left unpaid, the financial institution will initiate recovery actions, including foreclosure and auctioning off the property to recoup the outstanding loan.
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Tan gave examples of mortgage insurance such as Mortgage Level Term Assurance (MLTA) or Mortgage Reducing Term Assu­rance (MRTA).
'These policies will provide the necessary funds and ensure that homeowners or their families have a roof over their head in the event of incapacitation or death of the borrower,' he said when contacted.
Tan acknowledged that these policies have its pros and cons, so Malaysians taking up housing loans should evaluate which is suited for them.
He said the MRTA is a life insurance policy that covers the outstanding balance of a mortgage and in tandem with the declining loan amount.
'It is straightforward and covers only the outstanding sum needed to settle the mortgage.
'The premium is a lump sum often paid upfront or included in the principal loan amount taken for a house and paid directly to the financial institution that provided the loan facility.
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'There are no other additional benefits and if one settles the loan earlier, they may only receive a minute sum of the premium in refunds,' he said.
As for MLTA, Tan said it is quite similar to a regular life insurance policy with the coverage sum remaining fixed throughout the loan tenure.
'If the coverage is RM300,000, the payout will be the same sum in the event of death or incapacitation even if the outstanding loan amount is RM50,000.
'The MLTA enables the beneficiary to have additional funds in hand when the outstanding loan amount is lower than the coverage,' he said.
Although the policy is under the name of the homeowner, he said this sum is transferable and may be used to cover other loans they may take after the main mortgage is paid up.
Since the MLTA has a bigger cash or surrender value compared to the MRTA, he said it would be far more expensive.
Wealth manager Evan Teo said it is not compulsory for house buyers to purchase mortgage insurance, but some banks may decide to make it mandatory by bundling it with their mortgage loans.
'Some mortgage bankers also cross-sell it alongside the loan by offering a lower interest rate if the buyer takes up the MRTA or MLTA.
'I believe this is because bank assurance products such as MRTA and MLTA are now part of the mortgage banks or bankers' KPI,' he said, referring to the key performance index.
But putting aside the bank's or banker's KPI, Teo said purchasing a mortgage insurance ultimately benefits house buyers.
'The majority of house buyers tend to be reluctant to purchase additional insurance unless it's required.
'Even though many insurance advisers are doing their best to educate the public, uptake is still relatively low unless it is packaged (into the loan),' he said.
As such, Teo was of the view that the practice by some banks to bundle MRTA or MLTA with mortgage loans is a good move.
He said in the past, the family members of loan takers would have to 'inherit' the housing loans when the borrower was not able to continue paying the monthly payment as they did not have insurance protection.
However, Teo also advised house buyers to pay attention to the terms and conditions included in their housing loan with banks before purchasing an mortgage insurance.
'For example, the coverage period may be shorter than the actual loan tenure or the policy might only cover death or total permanent disability.
'What happens if the buyer is diagnosed with a critical illness after the insurance term ends and this affects their ability to earn an income and continue loan repayments?'
'So, it's better to analyse your own needs in relation to the mortgage before deciding based on your financial capability,' he said.