Should Homeowners and Investors Get Mortgage Loan Insurance?

This post was originally posted on Planner Bee.

Owning a home is a major milestone and a significant financial commitment. For most Singaporeans, whether buying an HDB flat or private property, this usually means taking out a mortgage loan.

While securing financing is a key step, it is just as important to consider how to protect your loved ones from the financial burden of repaying the loan if something unexpected happens. If an illness, accident, or death occurs, your family could be left with the burden of managing the outstanding loan.

This is where mortgage loan insurance comes in. It helps ensure that your home loan is covered in difficult times, providing financial security for your family.

But what exactly is mortgage loan insurance, and should you get it?

What is mortgage loan insurance?

Mortgage loan insurance helps cover your home loan if you pass away, become permanently disabled, or are diagnosed with a terminal illness. If something happens to you, the insurance pays off the remaining loan, ensuring your family won’t struggle with repayments or risk losing the home.

In Singapore, HDB homeowners using CPF must have mortgage loan insurance. However, it’s optional for those paying with cash and for private property owners.

Types of mortgage loan insurance

There are two main types of mortgage loan insurance in Singapore:

1. Home Protection Scheme (HPS)

HPS is a mortgage insurance scheme administered by the Central Provident Fund (CPF) Board. It is compulsory for HDB flat owners who use CPF savings to pay their monthly loan instalments.

HPS only applies to HDB flats and covers death, total permanent disability, and terminal illness. Coverage ceases when the loan is fully paid or when the homeowner turns 65, whichever comes first.

Premiums are deducted from the CPF Ordinary Account (OA), so homeowners don’t need to make out-of-pocket payments. As the mortgage balance decreases, the sum assured also reduces.

Read more: Mortgage Insurance: All You Need To Know About Home Protection Scheme

2. Private Mortgage Insurance

Private property owners or HDB homeowners looking for alternatives to HPS can choose private mortgage insurance from various insurers. There are two main types:

• Mortgage Reducing Term Assurance (MRTA): Like HPS, the coverage decreases over time as the loan balance reduces.
• Level-Term Mortgage Insurance: The sum assured stays the same throughout the policy term, even as the mortgage balance declines. The payout can cover mortgage payments and other financial needs, providing additional security for dependents.

MRTA is usually more affordable than level-term mortgage insurance. Both can be tailored to match your loan amount and tenure.

Why does mortgage loan insurance matter?

Whether you’re buying a home to live in or as an investment, mortgage loan insurance offers financial security and peace of mind. If something unexpected happens—such as death or a terminal illness—this insurance ensures the outstanding mortgage is covered. This prevents loved ones from struggling with repayments and helps secure a roof over their heads during difficult times.

This financial safety net is especially important for families relying on a single income or those with major financial commitments. Some policies, like level-term mortgage insurance, even provide additional financial support for dependents beyond just covering the loan.

For property investors, mortgage loan insurance protects investments and overall financial stability. If an investor passes away or becomes permanently disabled, this insurance prevents family members from inheriting debt or being forced to sell the property at an unfavourable price.

Lenders often view property investors as higher-risk borrowers, particularly those with multiple loans. Having mortgage loan insurance shows responsible risk management, which could improve loan approval chances or lead to better terms.

Choosing the right mortgage loan insurance

When selecting a policy, consider the type of property, your budget, and long-term property plans.

Property type

If you own an HDB flat and use CPF for payments, HPS is mandatory. If you pay for your HDB flat in cash, HPS is still worth considering, as it is often cheaper than private mortgage insurance.

For private property owners, mortgage reducing term assurance (MRTA) is a good option for protecting finances, even though it’s not required.

Budget considerations

If you only need coverage for your mortgage, both HPS and MRTA are cost-effective options. Level-term insurance is more expensive, but it offers extra financial protection beyond just paying off the mortgage.

In recent years, MRTA has become less popular, as level-term insurance has become more affordable. If cost is a key factor, compare prices carefully and see whether the price difference significantly impacts your budget.

Long-term property plans

If you plan to refinance your mortgage in the future, a portable insurance policy such as level-term insurance is a better choice than MRTA.

For property investors, MRTA is often the preferred option since it saves on premiums. Rather than relying on a level-term insurance payout, investors may benefit more from reinvesting rental income or having a separate term life insurance policy.

Pro tip: Shopping for mortgage loan insurance or reviewing your current premiums? Get a quick, hassle-free comparison quote here and make sure you’re getting the best deal.

Final thoughts

If you own an HDB flat and use CPF, HPS is mandatory, so the decision is straightforward. Private property owners, however, need to decide between MRTA and level-term insurance based on their financial goals.

• If affordability is your main concern, MRTA is a budget-friendly option.
• If you want additional financial protection for your family beyond mortgage repayment, level-term insurance is worth considering despite its higher cost.

For property investors, mortgage loan insurance is a key risk management tool. It protects assets, prevents financial strain, and ensures that properties can be retained or sold at the right time, rather than under pressure.

Ultimately, mortgage loan insurance provides peace of mind, ensuring that your family won’t be burdened with mortgage debt should anything happen to you.

Take the time to assess your needs and compare policies before making a decision. If you require more information about mortgage loan insurance, feel free to reach out to us at [email protected]. Protecting your home and securing your loved ones’ future is always a wise investment.