This is a guest post by Mandy Hiew, co-author of Money Tips for Doctors

MRTA is the abbreviation of Mortgage Reducing Term Assurance.  For those who don’t know what’s MRTA – it is a life insurance plan with decreasing sum assured over time, just to cover your home loan owed to bank.

Normally, this is what happen. After you buy a house, the mortgage officer will normally ask you to buy a hassle-free bank MRTA, single premium, and financed into the loan. You only pay a little bit extra per month, what a fantastic plan!

But are you aware that buying MRTA may not be able to directly protect your asset and your family?

If you purchase MRTA, the beneficiary is the bank. If any misfortune happens, the bank get the mortgage outstanding balance from insurance company (and now the bank is safe).

What happen to your house by now? Your house will be frozen under the estate, your assets will be utilized to pay for other liabilities, clearing income taxes (including outstanding and uncleared taxes for the past many years) and settle legal and accounting expenses. Your family is the LAST party to receive your assets. And in this process, your beloved family will only receive the asset if your asset value is greater than liability, otherwise your estate will be declared insolvent (bankrupt). Your family is forced to leave the house even though the insurance proceed from MRTA has already been paid out. Isn’t it unfair?

In short, bank MRTA is meant to protect the bank, you and your family are only being protected Conditionally.

Then what is the solution? Buying personal MLTA. It means Mortgage Level Term Assurance.

If you purchase personal MLTA, the beneficiary is your family. In case of any misfortune happens, your family will get insurance proceed equal to the value of the house. And the most important thing is that this insurance proceed is creditor-proof and will not be frozen.

What about the house? The house will still be frozen and subject to the same estate execution process anyway.

If your asset is less than your liability, your family at least have already got the cash from insurance. They can buy a new house now.

If your asset is more than your liability, your family get both house and the cash.

Does this make sense to you?

And the other wonderful thing is that if you finish your mortgage installment earlier and wanted to change to a bigger house. Your personal MLTA is portable to your new loan.

What is your choice?


KCLau
KCLau

Personal finance author and trainer

    42 replies to "Why you may lose your house if you simply opt for Bank MRTA?"

    • Thanish

      Let say we have MRTA, can it be cancelled anytime? If yes, would I get some balance from the initial premium paid?

      If can do that, i believe better option is to take up MLTA.

      Thanks for your informative article.

    • azizah

      Dear KC, thank you for sharing this. I’ve learned a lot from you. By the way, is there any Islamic MLTA in Malaysia?

      • AnTakTau

        i believe,

        MRTA = Mortgage Reducing Term Takaful (MRTT)
        MLTA = Long-Term House Takaful (LTHT)

        and only provided by islamic bank institution.

    • puiyee

      hi kc,

      if that’s the case, we can just opt to do a will right?

    • KS Lim

      Hi KC,

      I think there’s a slight omission in the article above. It is mentioned that using a MRTA, the bank gets the proceeds of the insurance. But using MLTA, there is no mention on what happens to the housing loan. Also unless I am mistaken, while the MRTA is a single premium insurance, the MLTA is not. Please clarify.

      Finally, if it is a condition of the housing loan that a MRTA is required, can the borrower still insist on a MLTA if this is not acceptable by the bank?

      Thanks.

      • Mandy

        Hi KS,

        In personal MLTA, the proceed will go to the beneficiary (family) if the nomination is properly done. The family now has a choice whether to pay off the housing loan or to keep the huge insurance proceed and slowly serve the installment.

        If you call Bank Negara to ask whether commercial banks can compulsory clients to take up MRTA, I believe they will answer No.

        Yes, MRTA is a single premium while MLTA is a regular premium. This article is discussing its function from estate planning point of view. We will probably discuss mortgage insurance costing in future article / webinar.

        • KCLau

          As mentioned by Mandy, MRTA is not compulsory. But some banks give better package (lower interest rate) if you take up MRTA with them.

        • KS Lim

          Hi Mandy/KC,

          I have been lucky as the bank I took a mortgage from did not insist on a MRTA.

          But as per comment from CK below I have also been informed the same. If the bank asks for a MRTA and you insist on a MLTA, they may accept on condition that the MLTA is assigned to them. Only if the bank does not ask for a MRTA, the borrower can then purchase a MLTA and name your owm beneficiary.

          • KCLau

            Hi KS,

            Common practice is that banks will offer special rate (slightly lower interest) for customers who took up MRTA with them. But it is not compulsory. If that particular bank requires that, why not just go to other banks that allow?

    • CK

      not true, even if buy personal MLTA, will still need to assign to bank right ?

      • Mandy

        CK,

        You do not need to assign to the bank if you buy Personal MLTA, you can nominate family as beneficiary instead.

    • Kuan Yik

      Hi KC,

      Sorry I am a newbie here. Where do I purchase a personal MRTA? From the bank or insurance company?

      • KCLau

        @Kuan Yik,

        MRTA and life insurance are provided by insurance company. You can buy it through the banker, or from life insurance agent.

    • Winnie Chu

      Hi KC. Just bought a house a few years ago, bought MRTA, Islamic one. In order to go for MLTA, we have to surrender the previous MRTA first? I financed the MRTA with the loan, in this case have to re-calculate again the monthly payment?

      Appreciate to have your reply. Tks!!!

      • KCLau

        Winnie, since you’ve already got the MRTA, it is not advisable to lapse it right now because you will be incurring a loss on your premium.

    • Winnie Chu

      Hi KC.

      What about buying an extra personal MLTA? If the property price is not high, not worthwhile to do so right? If any misfortune happens, both the MRTA and MLTA will share the costs? What will the beneficiary get?

      Appreciate to have your reply. Thanks!!

      • KCLau

        @Winnie, the benefit MRTA or MLTA will be paid out when a assured person passed away. So if the person is over-insured (bought more insurance that is more than enough to cover the liability of the property), then the extra will be given to the beneficiaries.

    • nicole

      Hi KC,

      How about i buy other life insurance plan to replace MLTA or MRTA?
      Can you do compare? Do i still need to assign to bank?

      • kclau

        It is not a rigid requirement by banks to ask you to assign policies to them. They might give better loan package if you buy MRTA from bank.
        Ask your bankers (as every bank has different practice) to see what is the best arrangement for you.
        Thanks for asking, Nicole.

    • alice

      Can use ILP Life/TPD to replace MLTA?

    • Anne

      Hi KC,

      Refer to below statement.
      If i opt for MRTA, and Im the one borrow the house loan. I have one of family member (Mr.A) join name in the S&P.

      I do have life insurance. will anything happen to my family? My house would not be frozen at my scenario right? My other life insurance still can cover the income tax or transfer my name to the Mr.A?

      Thank you.

      “Your house will be frozen under the estate, your assets will be utilized to pay for other liabilities, clearing income taxes (including outstanding and uncleared taxes for the past many years) and settle legal and accounting expenses. “

      • KCLau

        @Anne, the house will still be frozen no matter what if it is under a person name (whether joint-name or not). Life insurance is just a way to payout the sum assured before you can unfreeze the properties.

    • Terrence

      Hi,

      Wondering whether there’s any MLTA or MRTA calculator out there.

      What is the premium payable for a loan totalling 1million?

      I understand that the premiums for MLTA will be much higher than MRTA, however not too sure how much is the difference.

      • KCLau

        Hi Terrence, it is best to consult an insurance agent to provide you the comparison.

    • Christina

      What if I already buy mrta which the beneficiary is the bank. Is it possible to change?

    • WATI

      I SIR , I HAVE BEEN READ YR ADVISE ABOUT THE MRTA AND MLTA

      What if I already buy mrta which the beneficiary is the bank. Is it possible to change?

      • KCLau

        Yes. If you no longer have mortgage with the bank, you can request to have the nomination done for your policy.

    • Hafiz

      Hi KC,

      Without MRTT – Bank offer 4.5%
      With MRTT – Bank offer 4.35%

      Let say financing amount 240k for 35 years, is it worth to take the offer?

      Subscribed to separate life takaful just in case.

      Appreciate your opinion.

      Thanks.

      • KCLau

        It depends on whether you want the insurance or not. If for own stay, better get it. If for investment, you have the choice.

    • Lisa

      Hi KC,

      If I get a MRTA now, but later on decide to switch it to a MLTA premium, is that possible? If yes, what would be the pros and cons of it and if there would be any penalty incurred?

      Thanks!

      • KCLau

        There is no “switching” from one policy to another. Technically, you will need to surrender the existing one and buy a new one.
        Surrendering – you will get back certain portion of your premium
        Buy a new one – it is based on your current age and premium amount is more expensive as you get older.

    • Ee

      Hi may I know in the event of a deceased person, what is the procedure for the beneficiary to deal with the estate property assured with mrta ? Does the beneficiary needs to obtain the probate to proceed with matter related to the property or the loan?

    • Lau

      Hi KC,
      what if i did not opt for either MRTA or MLTA during apply for home loan, later on i want to buy MLTA?
      And if above is possible, i will need to pay lump sum MLTA premium? or it will be added to my home loan installment amount?
      thanks.

      • KCLau

        If you want the insurance premium of the MRTA to be included in your loan, then you will have to decide whether to take it before signing the letter of offer.

    • Lathifah

      Hi KC,
      How do i proceed with the MLTA if i want to sell the house? Do i still need to pay the monthly premium after selling the house? If i do, how do i cancel it? Thanks.

      • KCLau

        If you no longer need the insurance, of course you can cancel it anytime with your agent, or walk in to the insurance company to do it.

    • Amed

      Hi Mr. KC,

      I got some silly @ crazy question.
      Let’s say that my loan taken few years ago.
      And I still got few decades to go.
      Is it possible for me to buy mrta now?

      Thanks in advance for your answer.

      • KCLau

        Yes… it is a separate arrangement. You can buy insurance anytime as long as your health permits.

    • Chan

      Hi KC and Mandy, I would like to get to the bottom of the part where it is said that the property is frozen. It is quite a big and scary word indeed where clarification is needed. Also on the part where there are debts to be cleared etc before the asset is being released. Isnt an MRTA arrangement between the bank and the customer only?
      If the MRTA covers the mortgage fully, Under what condition will the property get possessed when the deceased family members are still living in it?
      Say I have only got an MRTA to cover my mortgage, would a will circumvent the part in which the property gets frozen?
      Thanks

    • William

      Hi Kc, if a muslim purchase conventional Life insurance and use it as MLTA, does the MLTA serves its purpose? Because from what i know the nominee only act as executor but not beneficiary. The payout will need to distribute according to Faraid Law. If that is the case then it might cause the beneficiary dont have enough fund to repay back the loan.

      • KCLau

        Hi William, you are right. The better solution is to get the Family Takaful product (equivalent of life insurance but syariah compliant) as MLTA, not the conventional insurance plan.

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