MRTA vs MLTA: Which One’s Right for Your Home Loan?

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Buying a home is one of the biggest financial decisions you’ll ever make. But with that big decision comes another: should you opt for Mortgage Reducing Term Assurance (MRTA) or Mortgage Level Term Assurance (MLTA) to protect your investment? Let’s break down what these terms mean, how they differ, and which might be the best fit for you.

What is MRTA?

MRTA, or Mortgage Reducing Term Assurance, is a type of insurance policy that covers your home loan. Here’s how it works:

  • Decreasing Coverage: The coverage amount decreases over time, matching the outstanding balance of your mortgage.
  • Single Premium: Typically, you pay a one-time premium at the beginning of the policy. This cost can often be included in your loan amount.
  • Purpose: If something happens to you (like death or total permanent disability), MRTA ensures that the remaining loan balance is paid off, so your family won’t have to worry about mortgage payments.

Example: Imagine you take out a RM500,000 loan for 30 years. With MRTA, the coverage amount starts at RM500,000 and gradually decreases as you pay off your loan.  By the time your mortgage is fully paid, the MRTA coverage drops to zero.

What is MLTA?

MLTA, or Mortgage Level Term Assurance, is another type of mortgage insurance but with different features:

  • Constant Coverage: The coverage amount remains constant throughout the policy term, regardless of the outstanding mortgage balance.
  • Annual Premiums: You pay premiums annually or monthly, similar to a regular life insurance policy.
  • Flexibility: MLTA can provide additional benefits, such as cash value accumulation or the option to continue coverage beyond the mortgage term.

Example: You take out the same RM500,000 loan for 30 years. With MLTA, the coverage amount remains RM500,000 throughout the term. If you pass away or become totally and permanently disabled, your family receives the full RM500,000, regardless of the remaining loan balance.

Key Differences and Considerations

  1. Cost:
    • MRTA: Initially, you will “feel” it’s cheaper because you pay a single premium. Normally the bank will add the premium to your loan, and there is no Cash Value at the end of the tenure.  It’s a cost-effective solution if you’re certain you’ll stay in the home for the entire loan term.  
    • MLTA: The premiums are paid regularly either monthly, quarterly, half-yearly, or annually.  However, it provides constant coverage and can be more flexible.  
  2. Coverage:
    • MRTA: Coverage decreases over time, matching your decreasing loan balance.  Normally only cover for Death or TPD.
    • MLTA: Coverage remains constant, providing a fixed payout regardless of your loan balance.  Besides Death or TPD, may add Critical Illness coverage.
  3. Flexibility:
    • MRTA: Less flexible; primarily designed to cover your mortgage.  Once you change your loan or buy another new house, MRTA is not portable, you may need to buy another policy.  The worst case is that if not insurable due to unfavorable health conditions, might not be able to be insured.
    • MLTA: More flexible; you can continue coverage after the mortgage is paid off and possibly benefit from cash value.  Or, if you are buying another property or refinance your loan, this MRTA is portable and can be used for the next loan coverage.
  4. Beneficiaries:
    • MRTA: Typically, the payout goes directly to the bank to clear the outstanding mortgage balance.
    • MLTA: The payout goes to your nominated beneficiaries, who can decide how to use the money – to pay off the mortgage or for other needs.

Which One Should You Choose?

Choosing between MRTA and MLTA depends on your financial situation, future plans, and personal preferences. Here are some scenarios to consider:

  • Go for MRTA if:
    • You want a cheaper, straightforward option specifically to cover your mortgage.
    • You plan to stay in the home for the full loan term.
    • You don’t need additional life insurance coverage.
  • Opt for MLTA if:
    • You prefer flexibility and constant coverage, and additional benefits such as Critical Illness or Early Stage Critical Illnesses.
    • You want your beneficiaries to have control over the insurance payout.
    • You’re looking for a policy that can serve dual purposes (mortgage protection and life insurance).

Conclusion

Both MRTA and MLTA have their advantages and disadvantages. It’s crucial to assess your financial goals, family needs, and long-term plans before making a decision. Consulting with a financial advisor can also provide personalized guidance to ensure you choose the best option for your unique situation.

Remember, protecting your home is not just about securing a roof over your head but ensuring peace of mind for you and your loved ones. So, take the time to understand your options and make the choice that best aligns with your financial goals.

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