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?
73 replies to "Why you may lose your house if you simply opt for Bank MRTA?"
Purchase property – 2 names ( spouses )
Bank loan & mrta ( full loan amount ) – 1 name
If person took loan/mrta die/tpd – mrta will pay full loan amount or only 50% of the loan amount ?
Property purchased under 2 names ( spouse ) bank loan and mrta taken under 1 name, question ; if person taking loan/mrta die, will the mrta cover full loan amount ?
MRTA is a separate arrangement – meaning that it depends solely on what you bought on the MRTA.
How is the schedule of the MRTA coverage?
You will need to check back the policy to confirm the details.
What if MRTA amount not enough to cover the home loan, for example, MRTA 50k, home loan outstanding 100k, loan term 10 years, so the MRTA only cover first 5 years (approximately)? , Or 50% only (assuming towards end of the loan term there is still a small amount of outstanding, for example, 10k oustanding, MRTA only cover 5k).
Thank you
Then the insurance payout will not be enough to cover the full mortgage. Your heirs will have to come up with the difference, or restructure the loan, or sell the property to receive the equity in cash.
That’s why we gotta make sure we have sufficient life insurance coverage so that our net asset is higher than net liabilities
Hi, may I know what are the specific insurance companies out there (along with the specific name of the policies) offering MLTA. Thank you.
In fact, the MLTA is just another name for life insurance policies. Agents use the ordinary life policies like traditional whole life policies, term life policies, and investment-linked policies to structure the protection as MLTA.
Hi KC, i would like to know if it is advisable to dump in money to reduce the pricipal loan amount if i have already purchased a full term mrta that matches the full tenure of my loan. My mortage is 30 yr and i purchase a 30 yr mrta thank you
Hi Minnie, the consideration is not about the MRTA.
You can probably get back some cash value from the MRTA for the remaining terms that is not required.
To pay off your principal loan, it is about the rate of return / opportunity cost you can get elsewhere with your money.
If you have no idea how to generate higher return than the mortgage rate ~4%, then paying off the loan makes sense.
But I would prefer to invest that money to get higher than the mortgage interest.
Hi kc,
I now 40age.for example I buy house rm400k and loan 30year.my agent told me bank only approve mrta rm150k for 10year.why not full 400k coverage. If covered rm150k and only 10year that mean if anything happen how I can pay the loan or still have any method to solve it
For protection, you don’t necessarily need to buy MRTA from bank only.
You can top up the difference with your personal insurance. Consider the Fi-Life term insurance which is very affordable.
Check out with my affiliate link: https://KCLau.com/filife
Hi KC,
Regarding MRTA, in the event of death, how is the process of claim. inform the bank, then bank claim from insurance? or inform the insurance?
you mentioned the asset frozen, even for asset withjoint holder. Does this mean bank frozen the asset including house under loan and bank deposit? what is the process to unfreeze the asset?
Thanks
The policy is provided by insurance company. So you can directly contact insurance company.
Assets of the deceased will fall into his/her estate. That means “frozen”.
To unlock it, you will have to go through the estate administration and probate process. It will be months to years, to finally distribute the estate to the heirs.
Hi,
would like to check. My banker inform me that i may add up my MRTA into loan. I don’t really understand. Any problem?
And also he mentions that he will apply minimum like 150,000 and premium could be 10k?
im 46 years old. Is it true?
That means the premium for the MRTA is added as loan to your mortgage.
For example, say your mortgage loan is RM500,000, when adding the premium of RM10,000.. your total loan will be RM510,000.
The older you are, the higher the premium.
I bought my property 10 years ago and the bank loan is for 15 years mortgage , can you advise, t make a permanent disability claim with the insurance company and the officer in charge check my policy and informed me my policy had expired 3 years ago, can you help me, Thanks
You will need to find your policy and contact the insurance company. Find out why did it lapse.
Hi KC,
Would like to ask, if my MRTA was been rejected by insurance company, then will it affect my loan offer by bank?
Your MRTA was rejected most probably due to health issue.
I think it shouldn’t affect your loan approval, since it has been approved prior to applying for MRTA.
hi KC,
In the event of my demise, how will my spouse inform the bank to initiate the MLTA loan settlement? What happens to the property ? Thank you.
Your heir will get the insurance payout. When your spouse receives the money, she has the option to settle the full loan with the fund. Or can rearrange the financing with bank and pay installment.
bankrupty by maybank, After 3 years got a letter stated my housing loan fully settle by Etiqa insurance,
I went maybank pandan indah, officer said go to e-insolvensi, , e-insolvensi said go back to bank ask for letter.but bank not giving any letter. I cant travel overseas,
i’m paying monthly RM100 to e-insolvensi
Any idea what i need to do
You need to get the full settlement / release letter from Bank.
I can guide you. Please mail me
Bought house 11 yrs ago under two names , brother in law(malaysian) and myself (sporean) .Im still servicing the loan from day one .still have 10 more years to settle.Brother in law passed away recently.his name is still in the ownership .
Have checked with with bank that he has MRTA.
question: If he is a bankruptcy , will there be an affect on the insurance claim.
Insurance claim don’t go through his estate, unless there is no nomination.
But MRTA is normally assigned to bank. So banks will settle the debt with the insurance payout first. The leftover will be issued to his estate administration.
Do consult legal advice and don’t take my words. I am just sharing what I know.
thk u
Hi Kc,
I have been paying yearly premium on MLTA and realize that the actual cash payout will only materialize upon critical illness or death (beneficiary being my family). That pretty long time (another 35 years or so). I now reconsidering opting for MRTA now. Would I be able to cash out the existing plan ( I have been paying for more than 10 years now)..and how much usually is the bank penalties (if any)? FYI I’m comfortable to opt for MRTA as I do have other resources to back up the mortgage in case of mishaps.
Thank you.
You shall contact the insurance agent, or the insurance company with your policy number. They will be able to tell you the cash value if you surrender now.
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.
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.
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
Its been 2 years now. I had the same question when i read “frozen”. Well, KC Lau chose to ignore this question. Or did he personally replied you via email?
Bank will not foreclose the property if the payback of loan is on time.
When a customer has MRTA, the loan is covered. So bank won’t bother about the property.
When the owner passed on, MRTA covered the loan. So the family can still stay there.
The next process is to distribute the property to the heirs. That’s a different story, depending on who is going to get the property. Is the new owner going to sell it (might not be the family who lives there)? It is a separate issue.
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.
Yes… it is a separate arrangement. You can buy insurance anytime as long as your health permits.
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.
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.
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.
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.
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?
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!
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.
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.
It depends on whether you want the insurance or not. If for own stay, better get it. If for investment, you have the choice.
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?
Yes. If you no longer have mortgage with the bank, you can request to have the nomination done for your policy.
What if I already buy mrta which the beneficiary is the bank. Is it possible to change?
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.
Hi Terrence, it is best to consult an insurance agent to provide you the comparison.
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. “
@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.
Can use ILP Life/TPD to replace MLTA?
@Alice, yes.
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?
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.
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!!
@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.
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!!!
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.
Hi KC,
Sorry I am a newbie here. Where do I purchase a personal MRTA? From the bank or insurance company?
@Kuan Yik,
MRTA and life insurance are provided by insurance company. You can buy it through the banker, or from life insurance agent.
not true, even if buy personal MLTA, will still need to assign to bank right ?
CK,
You do not need to assign to the bank if you buy Personal MLTA, you can nominate family as beneficiary instead.
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.
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.
As mentioned by Mandy, MRTA is not compulsory. But some banks give better package (lower interest rate) if you take up MRTA with them.
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.
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?
hi kc,
if that’s the case, we can just opt to do a will right?
Dear KC, thank you for sharing this. I’ve learned a lot from you. By the way, is there any Islamic MLTA in Malaysia?
i believe,
MRTA = Mortgage Reducing Term Takaful (MRTT)
MLTA = Long-Term House Takaful (LTHT)
and only provided by islamic bank institution.
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.