To most of the investors, taxes and insurance create a cash drain of money that can be invested elsewhere. People always want to know how they can pay the minimum, if not zero, for taxes and insurance.
In our previous article, we discussed about the “Top six tax deductions for landlords” that may help real estate investors in a way to minimise their taxes. In this article, we will talk about an insurance specially designed for mortgage loan borrower – MRTA.
What is MRTA?
In Malaysia, one will always come across this term “MRTA” when taking up a mortgage loan to buy or refinance a property. What is it?
Mortgage Reducing Term Assurance (MRTA) is frequently referred to Mortgage Life Insurance. MRTA helps you settle your mortgage loan in the event something happens to you.
Technically, MRTA is designed to provide coverage and protection for borrowers who take up mortgage loans. It covers the borrowers against Death and Total Permanent Disability (TPD) due to Natural or Accidental causes, on the outstanding mortgage loan, on decreasing sum assured basis. This initially is for an amount equal to his/her outstanding loan, which will be reduced in accordance with the installment payments (according to the Table of Reducing Sum Assured attached to the policy).
By way of Mortgage Reducing Term Assurance, in the event of the borrowers’ untimely Death or TPD, MRTA settles the repayment of the mortgage loan. In this way, it assures that the borrowers’ loved ones are free from indebtedness in having to settle the outstanding mortgage on the house.
What is the cost?
Premium factors of MRTA depend on the sum assured, interest rate, term, construction period, premium financing, joint-life, age at next birthday. If you are between 18 and 60 years of age and in good health, you are eligible to take up MRTA. The younger you are the cheaper the premium.
The premium of MRTA is reasonable, and it can even be financed by your bank, i.e. incorporated into your monthly installment of mortgage loan. For example, premium for an outstanding mortgage loan of RM100,000 assured over 10 years is around RM700 for a borrower who is 35 years old. If the borrower’s mortgage loan tenure is 30 years, the premium only adds less than RM5 to his monthly installment.
When do you need a MRTA?
Apparently, if you are taking up a mortgage loan to buy a home, MRTA provides a good and yet affordable protection to you and your loved ones. If you are buying an investment property, do you need MRTA?
Our suggestion is simple, if you intend to flip your investment property in a very short time, then you don’t need MRTA.
If you have an intention to keep your property for a while but sell it away in near future, take the shortest term of MRTA. Normally the shortest term of MRTA offered by banks is between 5-10 years.
If you want to keep your property and pass it to your kids, take the longest term of MRTA which should be equivalent to the whole tenure of your mortgage loan.
14 Comments
Jason Han
June 6, 2009RM5 is really cheap.
Will get it for my second property.
mark
November 29, 2011If for investment what if the bank offer better interest rate or extra 0.5%. Will it be worth it to buy mrta. It must be full 30 year mrta.
Thanks.
ongkl
December 8, 2011Hi Mark, if the cost of MRTA is more than the saving of better interest rate, it is still not worth it to buy the MRTA.
Amaran
October 23, 2019Hi there ..
I’am buying a property and I choose MRTA as my insurance coverage and the sum insured is 530k – 50/50
May I know how much is the premium will I pay
Dr Guek
December 12, 2011Hi Ongkl,
Nice to meet you. I am medical specialist currently based in JB. I have been thinking of setting up a investor club in JB. I find your website is a good platform to form the group. There will be lot of benefits of this club, for example, we will enjoy extra discount during bulk purchasing. Besides that, we can also share the investment tips in Johor Bahru.
Please let me know whether you are interested.
Thank you.
GL Ong
April 30, 2015If the property is mortgaged jointly by 3 persons, should all take up the MRTA or the one with the longest age cover?
ongkl
May 5, 2015Hi GL, it would be better to have all borrowers included in the MRTA if we want to go for full protection.
saiba
August 21, 2017I just want to ask.I took housing loan from Maybank for 35 years and my MRTT cover up until 33 years.Is that ok? because MRTT is developed to cover the balance need to pay to the bank if I die right? it’s more to insurance right..so what would you advise to me? do I have to make an amendment on MRTT Coverage?
ongkl
August 21, 2017Hi Saiba,
Yes, it’s just like an insurance. Though the balance loan amount at the last 2 years (which is not covered) might be small, the chance for you to be in need of the insurance is higher by then. You may want to check if the additional premium for another 2 years is significant to you, which I doubt so unless your loan amount is huge. It may make not much difference to your installment but still worth checking.
Shaiful
September 19, 2017Hi Ongkl,
When someone purchases MRTA, what are the variables he/she can play with that decides the final premium amount? I am always under the impression we purchase MRTA by number of years such as 5, 10, 15, 20…. while the insured sum will always be equal to the loan amount.
Based on your article, it appears someone can purchase MRTA according to their preferred coverage amount as well as years.
Can you advise?
Thanks
ongkl
September 20, 2017Hi Shaiful,
Yes, shorter or lower coverage amount for MRTA lowers the final premium amount. However, do check the following article that highlights some potential risk involved if your coverage is below your outstanding loan amount and shorter than your loan tenure (Myth #6):
https://www.imoney.my/articles/6-popular-myths-about-mrta-and-mlta-that-arent-true-at-all
outPWL
October 23, 2017Hi Ong KL,
Could we get refund for MRTA if the project get canceled?
KCLau
October 23, 2017You can cancel the MRTA, but don’t think you will get full refund, only the cash value.
[…] letter of offer, the broker claimed that we have to take up either a Mortgage Insurance (MI) or a Mortgage Reducing Term Assurance (MRTA) as it’s a requirement of the mortgage loan. He then showed us two packages of AIG’s MI and MRTA […]
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