MRTA Demystified: Your Key to Home Loan Confidence and Security

Unlocking the Power of MRTA Home Loan Insurance: Your Guide to Enhanced Mortgage Protection. When it comes to securing a home loan, MRTA offers an intriguing proposition – combining life insurance coverage with the mortgage. But what advantages does it bring to borrowers who opt for this protection? And for those considering refinancing with a different bank, what steps should they take with their existing policy? PropertyScout presents all the insights you need in this comprehensive article.

What is the MRTA Insurance?

MRTA, or 'Mortgage Reducing Term Assurance,' is commonly referred to as 'Mortgage Life Insurance' or 'Mortgage Insurance' in Thai. It is a type of life insurance specifically designed to protect borrowers during the period when they are repaying their home loan. In the unfortunate event of an unforeseen circumstance, the borrower can find solace in knowing that the burden of mortgage repayment will not be left to their family. If the borrower becomes unable to continue the mortgage payments, the responsibility would be passed on to the family members, as per the usual principles.

Types of MRTA Insurance

In general, banks can offer various forms of MRTA insurance alongside home loans, tailored to the suitability and financial capacity of the borrower. These insurance options may include coverage with a decreasing sum assured each year based on the remaining loan balance or coverage with a fixed sum assured throughout the loan period. Additionally, borrowers can choose a coverage duration shorter than the loan term if they plan to settle their mortgage before the original timeline.

Benefits

Risk Prevention

With MRTA Home Loan Insurance, unexpected events won't leave your loved ones with the mortgage responsibility. Financial institutions receive payments from the insurance company until the end of the loan term, securing your home and family's future.

Home Loan with Simultaneous Personal Loan

Borrowers can opt to include insurance premium in their loan amount, allowing them to borrow additional funds to cover the insurance cost. This flexible approach lets borrowers customize their insurance coverage without the need for full coverage or throughout the loan term.

Tax Deduction

MRTA insurance premiums are tax-deductible, offering additional tax benefits alongside the home loan interest deduction. By choosing MRTA coverage for at least 10 years, borrowers can deduct life insurance premiums up to 100,000 THB per year, providing financial security and tax savings simultaneously.

Lower Interest Rates

If borrowers choose to have MRTA coverage, they will receive a lower home loan interest rate compared to the regular rate, with a difference ranging from 0.25% to 0.50%. The insurance reduces the risk, offering borrowers a more favorable interest rate.

Certainly, MRTA Home Loan Insurance can be highly beneficial in unexpected events that affect the borrower's life. The insurance payout can relieve the borrower, their family, or heirs from the burden of mortgage payments. However, the significantly higher premiums compared to other insurance types make it a decision that requires careful consideration.

Bank loan officers often advertise that having MRTA insurance can make it easier to get a home loan or even offer lower interest rates if borrowers opt for both simultaneously. This claim may not always hold true as MRTA insurance is purely optional, and it might not necessarily lead to interest savings as advertised. PropertyScout advises borrowers to thoroughly assess the additional costs involved, such as whether they need to take out an extra loan to pay for the MRTA premium, before making a decision.

What to Do with MRTA Insurance When Refinancing? Renew or Reapply?

One common concern among borrowers is what to do with their MRTA insurance when it's time to refinance and switch to a new bank. The situation becomes tricky when the policy's beneficiary is still the previous bank, despite changing to a new one. However, there are two possible solutions to help borrowers manage their MRTA effectively during this transition.

Solution 1: Change the Beneficiary's name

This approach is suitable for MRTA policies that still have sufficient coverage after refinancing, or for individuals who want to keep their existing insurance for peace of mind, even if they don't want to spend extra on additional coverage. At least, it provides some level of protection in case of unexpected events, even if the insurance amount may not fully cover the outstanding loan balance.

Borrowers can request to change the beneficiary's name in their MRTA policy. In this case, the borrower will continue to receive continuous coverage as before, but the beneficiary's name will be updated from the previous bank to the new bank.

However, it is essential to note that the insurance amount in the policy may be lower than the new home loan amount after refinancing. This could be an issue for borrowers who refinance for additional funds, such as home renovations or personal expenses. Also, if the MRTA policy has a decreasing sum assured each year and the coverage amount is lower than the new loan amount with the new bank, the MRTA policy may not fully cover the excess amount.

Solution 2: Surrender the Existing Policy for Cash Value

This approach is suitable for MRTA policies that have accumulated sufficient cash value and can be surrendered to use for other purposes. Borrowers can choose to surrender the MRTA policy to receive the cash value if they no longer wish to continue with the insurance or want to utilize the funds for other needs.

By informing the insurance company of the intention to surrender the MRTA policy, borrowers can receive the cash value. The amount received depends on the duration of the policy in force and the terms and conditions set by the insurance provider.

The cash received can be used for various purposes, such as paying off the old bank to reduce the outstanding loan balance with the new bank, thereby reducing interest expenses. Alternatively, the cash can be used for home renovations or any other necessary expenses.

The surrendered cash can also be utilized to purchase a new MRTA policy with the new bank or for any other beneficial purposes, depending on the borrower's needs.

Closing Comments

In conclusion, the significance of MRTA insurance varies based on individual circumstances. For those who are primary providers for their families and seek to safeguard their loved ones, MRTA coverage is highly recommended. It offers a sense of security, ensuring that unexpected events won't burden their family members in their absence. On the other hand, individuals without dependents or family responsibilities may find MRTA insurance less essential. In such cases, the property would eventually become the bank's asset if anything were to happen to them.

PropertyScout advises borrowers to carefully assess their options when it comes to MRTA insurance during the refinancing process. Whether it's choosing to keep the existing policy, using the cash value for a new policy, or utilizing the funds for other needs, borrowers have the freedom to manage their MRTA insurance according to their preferences.

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