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.