Why you should get mortgage insurance?

This article is first posted on https://www.insuranceempire.sg/

Buying a new home is a key milestone in life. Whether it is getting a BTO, resale or private property for home stay or for investment purposes, here is why it is important to get a mortgage term insurance to protect your asset for your family.

By definition, a Mortgage loan is a loan in which the borrower (new homeowner) puts up the title to real estate as collateral for a loan. This can be done by obtaining a housing loan from HDB, or a bank loan to purchase your property.

However, what happens if you pass away while having a home mortgage loan?

1st scenario - If the deceased is paying the HDB loan through CPF

  • The deceased will be covered under (Home Protection Scheme) HPS if they are using CPF savings to pay for monthly housing loan instalments on the HDB flat.
  • HPS is a mortgage reducing term insurance that protects members against losing their HDB flat in the event of death, Terminal illness or Total permanent disability.
  • In this scenario, CPF board will settle the outstanding housing loan (up to the insured amount of the reducing sum assured)(Note HPS as a term insurance can only insure members up to age 65 or until the home loan is paid up, whichever is earlier).

2nd scenario - If the deceased is taking a bank loan for private property or HDB and do not have any mortgage insurance

  • The surviving co-owner will obtain a Grant of Probate to the bank as evidence that he or she has the right to ssume the mortgage. However, if the surviving co-owner is unable to repay the existing loan, the bank has the right and option to foreclose on the property and sell it.
  • One factor taken into consideration when assessing the surviving co-owner is able to repay existing loan will be the Total Debt Servicing Ratio (TDSR) framework. The total debt servicing ratio (TDSR) threshold for property loans is set at a maximum of 55% of the borrower’s monthly income.
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