Acquiring a property, be it public housing or a private condo or landed home in Singapore, is a significant life decision. To ensure that your dream of homeownership doesn't turn into a nightmare in unforeseen circumstances, having mortgage insurance is a crucial step. This insurance provides financial protection for your loved ones, ensuring they can continue living in the home you've built together, even if tragic events such as death, terminal illness, or disability occur.
What is Mortgage Insurance?
Mortgage insurance is designed to provide a lump sum payment to you or your family in the event of unfortunate circumstances. This payment is intended to clear the remaining outstanding loan with the bank, preventing the bank from seizing your property. Even if your family decides to sell the house afterward, they retain the insurance payout.
Types of Mortgage Insurance
Decreasing Term Insurance:
Coverage amount reduces every year.
Can be bought solo or jointly, depending on ownership type.
Premiums are lower.
Level Term Insurance:
Coverage amount stays the same.
Each owner typically needs an individual plan.
Premiums are higher in joint-ownership scenarios.
The demand for level term insurance is increasing, leading insurance companies to offer discounts to make premiums more competitive.
Calculating Premiums for Mortgage Insurance
Several factors influence how premiums are calculated:
Higher loan amounts result in higher premiums.
Longer loan tenures lead to higher premiums.
Older age results in higher premiums.
Insurance companies may charge different premiums for men and women.
Pre-existing conditions or smoking habits can impact premiums.
Your income is assessed for financial affordability.
Choosing the Right Type of Mortgage Insurance
Consider the following examples to guide your decision:
A thirty-year-old nonsmoker seeking S$1 million in coverage over a 25-year period:
Level term premium: S$680.75 annually
S$881.70 a year is the premium for decreasing term (as joint-life).
A thirty-year-old nonsmoking man and woman seeking S$1 million in coverage over a 25-year period:
Individually purchased level term: total premiums = S$680.75 + S$555.75 = S$1,236.50 yearly
Premium for decreasing term (as joint-life): S$881.70 per year
Despite higher premiums, level term insurance may still be preferred as the coverage amount remains constant. This allows for potential reuse of the policy if you sell your property after the minimum occupation period and buy another home.
Buying a property is a significant investment and a long-awaited dream. Protecting your home and your loved ones through mortgage insurance is not just a choice; it's a necessity in sound financial planning. Be informed about the types of insurance, carefully calculate premiums, and choose the policy that aligns with your needs and circumstances.