Buying a property in Singapore is a big move, whether you’re going for public housing, or a private property such as a condo or landed home.
There is one important thing to do to make sure your dream of owning a home doesn’t turn into a nightmare. Should tragedy strike — death, terminal illness or disability — you want your loved ones to be able to keep living in the home you’ve built together, without having to worry about paying for it.
That’s what mortgage insurance is for. Without it, your family could have to make difficult decisions if they can’t afford the monthly loan installments.
What exactly is mortgage insurance?
Mortgage insurance is designed to payout a lump sum payment to you or your family, should the worst happen, to clear out the remaining outstanding loan with the bank. This can keep the bank from seizing your property.
Even if your family chooses to sell the house after such an event, they’ll still keep the payout.
What are the different types of mortgage insurance?
People buying a HDB property are asked to enrol in the Home Protection Scheme (HPS) during the sales process.
Here, however, we’ll look at private mortgage insurance. There are two types: decreasing term, and level term insurance.
|Coverage amount reduces every year
|Coverage amount stays the same
|Can be bought solo or jointly, depending on ownership type
|Each owner typically needs to get an individual plan
|Premiums are lower
|Premiums are higher (in a joint-ownership scenario)
Demand for level term insurance is increasing, so insurance companies are offering discounts to bring the premiums closer to those for decreasing term insurance.
How are premiums for mortgage insurance calculated?
Insurance companies formulate them on a case-to-case basis. When the coverage amount is high, or the applicant is older in age, a medical examination can be necessary.
These factors affect how premiums are calculated:
1. Loan amount
The higher the loan amount, the higher the premium — but this doesn’t mean that you should be aiming for a lower coverage amount. That could put you or your loved ones in unnecessary financial stress if calamity strikes.
2. Loan tenure
The longer the loan tenure, the higher the premium, but it is again not advisable to shorten your coverage period because the premiums are higher. In some instances, you won’t be able to renew your level term plan if you’ve chosen a fixed coverage period.
3. Owners’ age
The older you are, the higher the premium.
4. Owner’s gender
Insurance companies can charge men and women different premiums.
5. Medical status
This is an important factor — if you have pre-existing conditions, insurance companies can counter-offer, postpone or fully decline your application.
Smokers typically also have to pay higher premiums than non-smokers, assuming no other health conditions are present. Even if you’ve recently quit, insurance companies usually take 12 months to consider you a non-smoker.
Your income is used to assess financial affordability. Underwriters can ask you to submit supporting documents as evidence.
Which type of mortgage insurance is suitable for me?
People usually look for the lowest premiums, or follow the advice of a particular insurance company or financial consultant.
Here are some examples:
A man, 30, non-smoker, looking for S$1 million coverage over 25 years
- Level term — premium: S$680.75 annually
- Decreasing term — premium: S$510.00 annually
A woman, 30, non-smoker, looking for S$1 million coverage over 25 years
- Level term — premium: S$555.75 annually
- Decreasing term – premium: S$413.25 annually
A man and woman, both 30, non-smokers, looking for S$1 million coverage over 25 years
- Level term (bought individually) — total premiums: S$680.75 + S$555.75 = S$1,236.50 annually
- Decreasing term (as joint-life) — premium: S$881.70 annually
Despite the higher premium, however, you might still want to go for level term insurance.
The coverage amount doesn’t go down, so if you sell your property after the minimum occupation period and buy another home, you can “reuse” your policy for the new house.
If that happens, any surplus in the payout can be used for legacy planning for your dependents.
Buying a property is a big-ticket item, a dream, and something people wait years for. Protecting that home for yourself and your loved ones isn’t a choice — it’s a necessity in financial planning.