Buying a home is one of the biggest financial commitments you will ever make. While many Malaysians focus on securing a good loan or choosing the perfect location, one crucial protection often gets overlooked: mortgage insurance.
What Exactly Is Mortgage Insurance?
Essentially, mortgage insurance is a policy that protects your home loan in the event that you can no longer repay it.
If you pass away, become permanently disabled, or suffer a critical illness, this insurance kicks in to either reduce or fully settle the outstanding balance of your mortgage.
In simpler terms, mortgage insurance is a safety net for your home loan. While both fire and property insurance plans protect the physical building, mortgage insurance protects your ability to pay off the loan so your loved ones won’t have to.
Types Of Mortgage Insurance In Malaysia
In Malaysia, mortgage insurance is generally split into Mortgage Reducing Term Assurance (MRTA) and Mortgage Level Term Assurance (MLTA).
In simpler terms, both serve as a life insurance plan for your home loan, paying off your remaining loan should death or permanent disability occur.
Adding to that are the MRTT (Mortgage Reducing Term Takaful) and MLTT (Mortgage Level Term Takaful), both Shariah-compliant life insurance plans designed to cover your outstanding mortgage loan.
Differences Between MRTA, MLTA, MRTT, And MLTT
| Feature | MRTA
(Mortgage Reducing Term Assurance) |
MLTA
(Mortgage Level Term Assurance) |
MRTT
(Mortgage Reducing Term Takaful) |
MLTT
(Mortgage Level Term Takaful) |
|---|---|---|---|---|
| Type | Traditional Life Insurance | Traditional Life Insurance | Shariah-compliant (Takaful) | Shariah-compliant (Takaful) |
| Coverage | Decreases over time, in line with loan balance | Remains fixed for the entire term of the mortgage | Decreases over time, in line with loan balance | Remains fixed for the entire term of the mortgage |
| Premium Payment | Typically a one-time lump sum payment | Regular monthly/annual premiums | Typically a one-time lump sum payment | Regular monthly/annual premiums |
| Beneficiary | Usually the bank (to pay off the mortgage) | Family or chosen beneficiary | Usually the bank (to pay off the mortgage) | Family or chosen beneficiary |
| Best For | Homebuyers who want affordable, decreasing coverage | Homebuyers who want fixed coverage for the entire loan term | Homebuyers seeking Shariah-compliant mortgage protection with decreasing coverage | Homebuyers seeking Shariah-compliant mortgage protection with fixed coverage |
| Ownership | Bank usually owns the policy (beneficiary) | Policyholder owns the policy and chooses the beneficiary | Bank usually owns the policy (beneficiary) | Policyholder owns the policy and chooses the beneficiary |
| Investment/Savings | No investment component | May offer an investment component (depending on the insurer) | No investment component (Takaful contributions pooled) | May include an investment component (depending on the Takaful operator) |
Which Mortgage Insurance Is Better?
Each plan has its benefits, but choosing one or the other depends on your financial situation and needs.
Both the MRTA and MRTT consist of one-time payment insurance, which is generally cheaper upfront. You pay a lump sum at the start of your loan, and the coverage reduces as your loan gets paid off.
MLTA and MLTT, on the other hand, involve ongoing payments (monthly or yearly) and tend to cost more over time. However, it offers fixed coverage and may include savings or investment returns.
If you’re looking for something low-cost with basic protection, and plan to stay with the same loan, MRTA/MRTT might be sufficient. But if you want flexibility, additional benefits for your family, and potential cash value, MLTA/MLTT are the better long-term choices despite the higher cost.
Mortgage Insurance Comparison Based On Loan Value Of RM500,000
| Cost Element | MRTA/MRTT | MLTA/MLTT |
|---|---|---|
| Coverage Type | Reducing Sum Assured (matches loan balance) | Level Sum Assured (fixed RM500,000) |
| Loan Interest Rate | 6% p.a. | 6% p.a. |
| Monthly Loan Repayment | ~RM2,998/month | ~RM2,998/month |
| Premium Payment Type | One-time premium | Regular premium (monthly/annually) |
| Estimated Premium (Age 35) | RM9,000 (one-time) | RM300/month |
| Total Premium Paid (30 Years) | RM9,000 | RM108,000 (RM300 × 12 × 30) |
| Cash Value / Investment | MRTA: No MRTT: No (Takaful contributions are pooled) |
MLTA: Yes (depends on investment performance) MLTT: Yes (depends on Takaful investment performance) |
| Surrender Value | MRTA: RM0 MRTT: RM0 (Takaful funds are shared among participants) |
MLTA & MLTT: Varies — partial returns after the lock-in period |
To put it simply, choosing the right mortgage protection ensures that homebuyers are financially prepared and that their loved ones are supported, even in the most challenging circumstances.
Whether you’re looking for a cost-effective, decreasing coverage plan or a fixed, long-term protection plan, there’s a solution for all your needs. By choosing the right mortgage insurance, you safeguard your home, your family, and your peace of mind for the future.