Mortgage Insurance: MRTA or MLTA?

Mortgage Insurance - MRTA or MLTA?

The mortgage insurance is a type of insurance that covers the outstanding balance of housing loan in the case of the death of the borrower. The basics are simple: the borrower pays a monthly premium and if the borrower passes away, the outstanding balance is lessened by the insurance payout.

However, there are two different types of mortgage life insurance that are available. The two different types are Mortgage Reducing Term Assurance (MRTA) and Mortgage Level Term Assurance (MLTA). From their names, the two types of mortgages are quite different. This blog will look at the different types of mortgage life insurance and the pros and cons of each. It will also look at the basic differences between the two types of mortgage life insurance.

What is Mortgage Insurance?

Mortgage Insurance is a life insurance policy that protects the bank’s interest in the event of the borrower’s death. In other words, it will pay off the outstanding balance of the housing loan if the borrower dies. Mortgage Insurance is typically recommended but not compulsory. However, in most cases, one would enjoy lower housing loan interest rate if the borrower buys the mortgage insurance from the same bank as the housing loan.

What MRTA and MLTA means?

Both MRTA and MLTA are life insurance policies that are designed to pay out a lump sum amount of money upon the death of a policyholder.

The key difference between the two is the sum assured for MRTA is reducing (hence the term Reducing in MRTA) while MLTA sum assured remain the same (hence the term Level in MLTA) throughout the whole life policy.

Hence, MRTA is a policy that is designed to last the full term of your mortgage loan – until the day you pay it off. MLTA is a policy that is designed to last from the time that your first premium is paid until the current time or until old age. Therefore, MLTA could be a term life or whole life policy.

How to choose mortgage insurance that is best for you?

Whichever option you choose, it is important to know the difference between MRTA and MLTA. MRTA is a term assurance that starts off with a sum assured of RM100,000.00 (or RM200,000.00, RM300,000.00, etc). The sum assured will be reduced by the amount of premium paid each year on the policy. The sum assured will be paid directly to the bank which provides the loan upon his death. A policyholder can reduce the sum assured to zero by paying premiums for at least 20 years.

As for MLTA, the sum assured of this policy remains the same throughout the term of the policy. The premium payable depends on the entry age of the insured and the amount of coverage required. The premium is payable every year until the policy has matured. If the insured dies before the policy matures, the amount of premiums paid will be added to the amount insured and the total will be paid to the named beneficiaries.

How does premium for MRTA and MLTA differ?

MRTA premiums are calculated based on the outstanding loan of your house. MLTA premiums are calculated based on the entry age of the insured person and the coverage amount required. But how does this translate into actual numbers? Well, it has to be case by case basis because it involves many factors i.e. age, loan amount, interest rate, sum assured, the purpose of buying the property and etc.

Conclusion, if you’re considering buying a property, get either MRTA or MLTA

Mortgage life insurance is one of the most important types of insurance that every homeowner should consider. Mortgage life insurance is designed to pay off your mortgage loan in the event of your death. It is important to know that your house will not be sold to pay off the loan. Instead, the insurance payout will be used to pay off the loan. Hence, your dependents can own the property without any debt and obligations of repayment.

Yoong Chih Foo
A CFP holder which actively involves in Financial Planning and Insurance Advisory since year 2008. Constantly pursues value-based financial planning to provide adequate financial roadmap for anyone seeking guidance. Believes in 3 things for work and even play: Simple, Unique and Value.