Understand The Difference Between MRTA/MDTA and MLTA/MLTT In Just 5 Minutes

Buying a property is more than just getting the mortgage loan agreement and Sales & Purchase Agreement signed. There are more decisions to be made, especially if you are a first-time home buyer. For instance, have you thought about which mortgage life insurance works best for you?

Similar to a personal life insurance, the main purpose of a mortgage life insurance is to help to pay off the outstanding loan balance in the event that the mortgage borrower dies or suffers from total and permanent disability before the loan is fully paid off.

There are several mortgage life insurance products available in Malaysia but the common few are Mortgage Reducing / Decreasing Term Assurance (MRTA / MDTA) and Mortgage Level Term Assurance / Takaful (MLTA / MLTT).

Already losing your patience because the terms MRTA / MDTA and MLTA / MLTT is confusing? Please read on because we have simplified them to help you understand the differences between MRTA and MLTA in a few minutes so that you can make the right choices for your home.

Features of Mortgage Reducing / Decreasing Term Assurance (MRTA / MDTA)

• Decreasing sum assured over time.
• Only covers home loan owed to bank.
• Often offered by the bank as it is more favorable to the bank.
• Premium is paid up front at a one off amount.
• The policy follows the property loan rather than the owner.
• Usually packaged as an option together with the loan, hence it is cheaper than MLTA / MLTT.

Features of Mortgage Level Term Assurance / Takaful (MLTA / MLTT)

• Closer in nature to traditional life insurance policies as it is a personal plan that offer home loan protection, savings and some policies offer returns on the premium.
• The sum assured does not decrease with time.
• Your dependents are financially protected in case of any unfortunate events happening on you.
• Premiums are usually higher than MRTAs.
• Premiums are paid on a monthly, quarterly, half-yearly or yearly basis.
• The policy is transferable to another property as it follows the owner.

Now you have learned the major differences about MRTA / MDTA and MLTA / MLTT, the question is – is this mortgage life insurance compulsory and how much does it cost?

Just like any other life insurance in the market, MRTA / MDTA or MLTA / MLTT IS NOT mandatory. However, some banks will make it as one of the must-have conditions in order to offer you a mortgage loan.

While the premium of MRTA / MDTA or MLTA / MLTT is subject to your age, loan amount and loan tenure, the range for every RM500,000 protection required under MRTA and MLTA is approximately RM17,500 (lump sum) and RM2,000 (yearly), respectively.

So, MRTA / MDTA or MLTA / MLTT?

The humble advice from Hartamas Real Estate is that MLTA / MLTT is a better option as it provides an extensive protection from home to life, with some even providing returns on the premium. However, please be mindful that your cash flow needs to be sufficient to handle the higher ongoing premiums.

Meanwhile, MRTA / MDTA is a better choice when all you need is just the short coverage instead of the full duration of the home loan. Also, MRTA / MDTA can be bundled together with your home loan thus it can reduce your financial burden.

[Image source: People photo created by jcomp]