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Buying a house to live in or investing in one is regarded as a major life decision, being cheated in the process of buying and ending up paying unnecessary money is the last thing you’d want.

Unfortunately, many of us who may not be clear about the process and additional fees and requirements when buying a home could find ourselves falling prey to irresponsible and ill-intended individuals, who will seize the opportunity to gain additional benefits. Specifically, in terms of the Mortgage Reducing Term Assurance (MRTA) and Mortgage Level Term Assurance (MLTA). But how do they go about it? And what are our rights?

Disclaimer: The following article is not aimed at any individual, profession or organization. It does not represent the entirety of individuals in the professions or positions mentioned.


Getting MRTA and MLTA straight

Upon approval of your housing loan, the bank will require you to sign an offer letter. At this point of time, your broker may tell you that the bank requires you to purchase MRTA or MLTA, which is a form of insurance to protect the interests of both the borrower (you) and the lender (the bank).

For instance, if you, the borrower, unfortunately dies before settling the loan, the MRTA or MLTA will offer a certain amount of money to cover the relative amount of the loan owed to the bank. “Hmm..Sounds good…” you say? So how could anyone use it against you?


Problem #1: MRTA or MLTA is compulsory

Brokers may convince you to buy MLTA or MRTA even though it is not compulsory in order to get a cut (commission). So before agreeing to pay for either or even both, you must first know that normally, banks will require you to purchase MRTA.

For MRTA, the premium is paid in lump sum, and the amount included in loan amount (depending on whether the borrower can bear this additional cost). Any claim on the MRTA will be credited directly to the bank.

On the other hand, the MLTA premium is paid periodically and CANNOT be included into the housing loan. This is because MLTA is just like any an ordinary life insurance, the same as what insurance agents are selling out there in the market.

Most people who are not clear with the difference, will obediently abide and pay for MLTA from the broker, so as to avoid trouble, falling prey to these irresponsible individuals. But how bad can buying an extra life insurance policy be? Well, this is not the worst-case scenario.


Problem #2: Buying an MLTA insurance and not being able to make claims when needed

Like purchasing MLTA, it is like buying any other insurance policy, where you have to declare your health condition to the insurance company. However, due to misinformation by ill-intent brokers, some homebuyers assume that the MLTA comes with the bank loan and is passed on behalf of the loan, while their brokers do not guide them through the proper procedure.

When unfortunate events do happen, like the borrower suddenly dying or becoming immobilised from a preexisting illness or condition that they already have when they bought the MLTA, it is a violation of the terms of the policy. In such cases, the insurance company does not approve the claim on the policy, rendering all premiums to be paid in vain.

At the end of it all, the only person who benefitted from this is the broker or agent who sold the policy to the borrower in the first place.


The truth

In actuality, though banks may often use certain ways to persuade you into purchasing MRTA, such as offering a lower interest rate, it is not compulsory to do so. Even more so is the MLTA, where is is just another loophole for malicious brokers to earn extra commission from ill-informed borrowers.


The solution: be informed

If your mortgage broker tells you that the purchase of insurance, whether MRTA or MLTA is compulsory, you can ask him or her for an official letter from the bank that indicates so. Another way is to call and confirm with the bank yourself. There is a 14-days grace period when you purchase any insurance. As such, if your mortgage broker has bought the insurance on your behalf, or you’ve bought it but want to change your mind, you can still pull out and receive a full refund on any premium you have paid, as long as it is within that time period.

Ultimately, the MRTA and MLTA are there for your best interests. However, whether to buy MRTA or MLTA or not should be based on individual budget and financial plans. Should you have the budget for it, or if the policies fit in with your financial goals for the future, then by all means, do not hesitate to buy it.

So remember to be well-informed and do not allow your mortgage broker to pressure you into buying any insurance policy that you are not clear about. Make sure that your broker can provide a detailed explanation of the MLTA they suggest and its benefits before deciding to purchase.


Author's biography:

Mr. Diau is a real estate coach and trainer. He will be conducting a workshop to share tips on property investment and the road to success, promoting financial freedom through property investment. This is an opportunity not to be missed! For more information, please visit http://freemen.com.my/cnmdps/.

Mr. Diau will be sharing another article on MRTA and MLTA soon. Follow his Facebook page: https://www.facebook.com/mcdiau to receive updates!

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Does it mean that MRTA is compulsory to buy while MLTA is not? 

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from my personal experience... MRTA is not compulsory, as stated in bank loan offer letter... MLTA on the other hand, well insurance agents will love it when you want to consider MLTA instead...


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both also not compulsory, but banks will encourage you to buy MRTA. But my banker did not mention anything regarding MRTA or MLTA to me, I myself enquired and she explained to me properly, RHB banker.

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is not compulsory. but bank usually will try to bundle it together with loan. 

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In other words, the bank needs to collaborate with a insurance company or offer themselves the MRTA? 

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@henry is not compulsory,however the bank usually will try to bundle it together with the loan. Reason being the bank are protecting themselves from "unfortunate" events. Say for example, the main payee did not take MLTA or MRTA, if anything were to happen to them, no one will continue paying the balance for the house,therefore suffering the typical "lelong"/ house for sale incident. If the payee were to have MRTA/MLTA, this will pay the balance for the house if anything were to happen to the payee,thus providing a peace of mind for the family members. This is based on my understanding,feel free to correct me if i'm wrong. 

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speaking of "unfortunately" events... Do banks require Guarantors for as part of the loan package?

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@domng mortgage loan got property as coleteral. Normally does not require gurantor

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In other words, personal loan and educational study loan usually require guarantors?


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It is not compulsory to buy MLTA or MRTA but more advisable to. And it's better to buy from an insurance company (AIA or Great Eastern) rather than the bank. It is not a must to buy from the bank, but some banks make it compulsory as a gimmick, especially big international banks.

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@domng nowadays personal loan dont need guarantor since they charge u high % interest, since u are higher risk with no collateral.

study loan depends.  

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@6011_3531_5354 

Yes agree... and then the chances of going Insolvency for an individual for is not able to repay their debt... raised from the current RM30k to RM50k I have heard.

correct me if i am mistaken.

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@kate_chew buy with bank u got additional option to finance the amount together into loan. 

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Not only able to finance for MRTA together with loan. I know of cases of 110% loan, the additional is for renovation. Talk about investors who don't have cash for down payment and renovation. Really not recommended IMHO.