MRTA vs MLTA in Malaysia: Home Loan Insurance

The short answer

MRTA and MLTA are two kinds of insurance that pay off your home loan if you die or suffer total and permanent disability during the term. The difference is in what happens to the cover over time.

• MRTA, mortgage reducing term assurance: the sum covered goes down over the years, roughly following your loan balance. It is usually paid as one premium at the start, which many banks let you add to the loan. The payout goes to the bank.
• MLTA, mortgage level term assurance: the sum covered stays level for the whole term. It is usually paid monthly or yearly. Once the loan is cleared, any balance can go to your family or estate, depending on the policy.

MRTA usually costs less up front. MLTA usually costs more, but it can stay with you when you sell or refinance. Which one fits depends on your budget, your family and how long you plan to keep the home. To see the loan itself in numbers, use the loan calculator. Want me to work it out for your own case? WhatsApp +60 17-279 8932.

What home loan insurance is for

A home loan in Malaysia often runs for 30 years or more. If the main earner dies or can no longer work, the family still owes the bank. Home loan insurance is there to pay off that debt so the family keeps the home without the instalment.

It is different from fire insurance (or houseowner insurance), which covers the building against fire and other damage. For a strata unit, the building is insured through the management body under the Strata Management Act 2013, and the maintenance fee pays for it. Home loan insurance covers your life and ability to pay, not the bricks.

Whether you must take one is set by the bank in its letter of offer. Some banks make it a condition; others leave it to you. Read the offer before you sign, and if it asks for cover, ask in writing whether a policy from another insurer is accepted.

MRTA in plain words

With MRTA, the sum covered starts close to your loan amount and goes down year by year, in line with a loan schedule set out in the policy. The idea is that, at any point, the cover is about what you still owe.

Features that are common, though each policy differs:

• One premium. It is usually paid once, at the start.
• Can be financed. Many banks let you add the premium to the home loan, so you pay nothing extra on the day, but you pay interest on it over the loan term.
• The bank is paid. If a claim is made, the payout goes to the bank to settle the loan.
• Cover period can be shorter than the loan. You can choose a cover period that is shorter than the loan term to lower the premium. If you do, the years after the cover ends are not protected.
• Tied to the loan. If you sell, refinance or settle early, the cover usually stops. Some policies refund part of the premium as a surrender value.

A key point people miss: the reducing schedule in the policy is based on an assumed interest rate. If your actual rate goes up and your loan balance falls more slowly, the cover can fall faster than your real balance and leave a gap. Ask what rate the schedule assumes.

MLTA in plain words

With MLTA, the sum covered stays the same for the whole term. If you take RM 450,000 of cover, it stays at RM 450,000 in year 1 and in year 25.

Features that are common, though each policy differs:

• Regular premiums. It is usually paid monthly or yearly, not once.
• Level cover. As your loan balance falls, the gap between the cover and the loan grows. If a claim is made, the loan is paid off first and the rest can go to your nominee or estate, depending on the policy.
• Owned by you. The policy is usually yours, not tied to one loan. It can often carry on after you sell or refinance, and some plans let you use it for another property.
• Cash value in some plans. Some MLTA plans build up a cash value. Others are pure protection. Read the product disclosure sheet.

Because the cover does not fall, MLTA usually costs more in total. You are buying more cover in the later years.

Side by side

The Islamic versions are MRTT (mortgage reducing term takaful) and MLTT (mortgage level term takaful). They work in a similar way but follow takaful principles.

Worked example: a RM 500,000 home

Same assumptions as the DSR guide, so the numbers match across this site: a RM 500,000 home, a 90% loan of RM 450,000, 30 years, an assumed 4.2% a year. The rate is for illustration only, not a quote and not a forecast. The instalment is about RM 2,201 a month.

How the loan balance falls (approximate)

The balance falls slowly at first, because early instalments are mostly interest, then faster in the later years.

What each cover would pay (illustration)

These are rounded figures on the assumptions above. A real MRTA follows the schedule in its own policy, not your exact balance, and a real MLTA pays out according to its own terms.

What adding a premium to the loan does (example)

Suppose, as an example only, a single MRTA premium of RM 10,000 is added to the loan. The loan becomes RM 460,000 and, on the same assumptions, the instalment goes up by about RM 49 a month. Over 30 years, the RM 10,000 costs you about RM 17,600 in repayments. That extra instalment also counts in your DSR. Your actual premium depends on your age, health, the cover amount and the period, and only the insurer can quote it.

The duty on the loan agreement is 0.5% of your loan, so a bigger loan also means slightly more stamp duty. See the stamp duty guide.

Which one fits

There is no single right answer. Some ways to think about it:

• Tight cash at the start: MRTA added to the loan means nothing extra on the day. You pay for it slowly, with interest.
• You expect to sell or refinance within some years: MLTA can move with you. With MRTA, you may need new cover for the next loan, at an older age.
• You want something left for the family: MLTA can leave a balance after the loan is cleared, depending on the policy.
• You already have life cover: if your existing life insurance is large enough to clear the loan, ask the bank whether it is accepted. You may need less new cover.
• Joint loans: ask whether the policy covers both borrowers and how a claim on one borrower is handled.

It also helps to look at the cover period, the illnesses or events covered, waiting periods and exclusions. Two policies with the same name can be quite different inside.

What to check before you sign

• The letter of offer. Does the bank require cover? What type, how much, for how long?
• The product disclosure sheet. It shows the premium, the cover, the period and the main exclusions. Ask for it before you agree.
• The assumed rate in an MRTA schedule. If it is lower than your loan rate, the cover can drop faster than your loan.
• The cover period. A shorter period lowers the premium but leaves the later years unprotected.
• What it covers. Death and total and permanent disability are common. Critical illness is in some plans, not all.
• Surrender value and refunds. What happens if you settle the loan early or sell?
• Health declaration. Answer every question fully. A wrong answer can lead to a claim being refused.
• Who the nominee is, for an MLTA, and whether the policy is assigned to the bank.

Mistakes buyers make

• Signing the bank's insurance form at the same time as the loan without reading it.
• Assuming MRTA covers the whole loan term when a shorter period was chosen.
• Forgetting that a premium added to the loan raises the instalment and the DSR.
• Cancelling an old policy before the new one is in force.
• Thinking fire insurance and home loan insurance are the same thing.

Related terms

• DSR (debt service ratio): how the bank checks whether you can afford the instalment.
• Margin of finance and loan-to-value: how much the bank lends.
• SPA (sale and purchase agreement): the contract you sign before the loan.
• Stamp duty: the duty on the transfer and on the loan.

Check before you sign

This page explains how home loan insurance generally works. It is not insurance or financial advice, and each policy has its own terms. Read the product disclosure sheet and the letter of offer, and ask the bank or insurer to explain anything that is unclear. For help with a specific property, WhatsApp Shyan Yee (REN 46305, IQI Realty) at +60 17-279 8932.