What is a mortgage insurance? Most people acquire a property or an asset but see no need to protect the newly-acquired asset (from actions of mortgagee bank).
At MortgageWise, we aim to educate our clients on this often-overlooked aspect of property investment. And you will be surprised – the cost of protection is a mere fraction of what you pay for the property. Today, if you know a typhoon is brewing, you will take protective measures before it hits. In Singapore, we may not have typhoons, but we certainly need to protect ourselves against potential storms in our lives.
We call it asset protection here, not mortgage insurance which refers to a specific product category and is narrower in perspective. We like to see this need in the broader context of protecting your asset, or protecting your loves ones from adverse actions from lenders in distressed situations.
In fact, we have tied up with our Financial Adviser (FA) partner who will show you when it comes to asset protection, there are other tools available besides a traditional mortage insurance plan, or what is more commonly known in the industry as MRTA (mortgage reducing term assurance).
First, the need for asset protection needs no elaboration. When something untoward happens to you,
- The family is saddled with mortgage payments
- They may not be able to service the loan and lose the house
- They may not be able to refinance with ease for lower rates and be at mercy of lenders
- They may be forced to sell the house during unfavourable times
- They may incur Seller Stamp Duty (4-12%) if the property is bought in recent years
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We like to share three case studies:
1. Create Additional Inheritance
Say you have $1m dollar in cash. You buy an investment property at $1m. You could either pay in full cash and leaving your two children with a house that is fully paid. Or you could keep most of the cash, pay only $250,000 as downpayment and use leverage with $750,000 of mortgage loan, pay for asset protection at just $713* per year (or just 2% cost on $1m over the entire 30-year loan tenure) and leave one child with $750,000 of your cash, and another with a fully-paid property, should the storms of life strike.
Which would you choose?
2. Maximum Cover When Most Needed
Sarah (not his real name), 38 years old with two young kids, came to us in November 2018 to refinance her $734,000 home loan through MortgageWise. Not only did we get her the lowest fixed rates at that point in time, we introduced her to our FA partner to review her need for asset protection (something she didn’t get to do since her purchase.) The initial plan was to buy a typical mortgage insurance (MRTA) plan which would start with coverage of $734,000 to be reduced over 27 years of loan tenure. Our FA partner showed and compared for her the various options and costs, going beyond just mortgage insurance plans.
The end result – instead of paying $499* per annum (cheapest MRTA plan in the market) for the next 27 years which would cost her $13,473 over the duration , she decided on a 10-year renewable and convertible term plan which pays a much higher $1m coverage for the period when she needed the most protection (young kids and aged parents in the next 10 years). And all that for the cost of only $390** per annum!
3. Ultimate Protector – Cash Is King!
How about converting this cheap $1m term cover (10-year period) to a Universal Life (UL) plan (until age 99) when you are ready to pay for the $200,000 premiums later in life but when your health may disqualify you from doing so? Instead of leaving behind just immovable assets like properties, with all its carrying costs like repairs & renovations etc not to mention ABSD, why not inject $1m liquid cash into your estate which will be paid out immediately to your dependants typically within a month (without going through the court probate process) – when the family needed cash the most, and fast.
The best part – you may not even need to pay the premiums from your own pocket! And that’s exactly what another client Adam (not his real name) 36, did when he came to us in Feb 2019 to refinance a S$570,000 home loan for an investment property rented out at S$3,500 per month. After meeting with our FA partner, he took additional term loan of S$200,000 whilst refinancing, which increases his monthly repayment from S$2,772 to S$3,744 over the remaining 21 years. Using no cash upfront, he paid US$139,500 (S$189,000) premiums for a US$800,000 (S$1.088m) UL cover which he reckoned the additional interest could be serviced from the rents even though he needs to top up a shortfall of S$244 every month for now. He could recover the entire UL cost at some point when he sells the property for a profit.
Adam just increased his estate by S$1m in cash – which means he can deploy fully his existing cash holdings to fund his desired retirement lifestyle, while still leaving behind his properties (he can get additional MRTA coverage if he wishes). The cash payout to his family could be more than S$1m as it grows in investment value over time. Incidentally, with premiums fully paid, if need be you could also securitise a UL plan to get a loan in the future just like a house, by giving the lender a first charge on the security. This might be lowest form of financing next to a mortgage, as it is secured lending.
Instead of passing down a 2nd property which attracts ABSD, adding a high-value cash inheritance through a UL plan might achieve the same purpose. And there is no better way to do that than through leverage where premium costs are amortised over long periods but the high cover kicks in immediately. By working with our FA partner, we bring you the most complete advisory in both interest costs management and asset protection.
Like to know the difference between a traditional MRTA (mortgage insurance), and that of a fixed term plan with renewable and convertible features? How does these features work? Or what is the difference between a UL plan and that of a traditional whole life plan? Speak to our FA partner today who will show you how, for the cost of merely $390** per year, you could achieve the twin-objective of inheritance creation and asset protection at the same time.
And just like how we help to compare and souce for the best mortgage rates for refinancing, our FA partner would do the same for you in asset protection. Already have a mortgage insurance plan in place? Why not take this time to review with our FA partner, and you might just find better plans with new exciting features at more competitive prices.
Speak To Our FA Partner Today!
(existing customers need not fill this but text your MortgageWise consultant)
This page does not constitute an offer or recommendation to enter into any transaction. We do not sell or market insurance products nor do we represent any insurance companies or financial institutions. Instead, we choose very carefully our partner, an IFA (independant financial advisor) licensed by MAS, whom we work with to bring the most complete mortgage advisory service and products to all our clients. You are fully responsible for your investment decision and you are advised to speak to a licensed financial advisor before committing to the purchase of any investment or insurance products.
*Annual premiums quoted for a conventional MRTA plan at 2% amortisation rate, for a healthy person (non-smoker) with no pre-existing medical conditions.
**Annual premiums quoted below for a 10-year renewable & convertible term cover for a healthy person (non-smoker) with no pre-existing medical conditions (premiums guaranteed for each 10-year period):
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