According to The Sunday Times, dated July 18 2010, about 70% of Singapore private property owners do not buy mortgage insurance! Let me share with you why mortgage insurance is important if you own a private property.
In the event of death
To many Singaporeans, their property is easily their family biggest expense item. This is especially true now when $1 million is considered cheap for a condominium. However many houses are heavily leveraged, which means they are on a $800k mortgage loan after a 20% down payment. The surviving spouse got shoulder the entire loan repayment in the event of death of partner.
“Sell the house!” was the reply from my friend when I spoke to him about this matter.
Is it that simple? There can be 2 scenarios…
- Housing price went up – the surviving spouse might still pocket some profit after the mortgage loan repayment. Family ends up with money, no house.
- Housing price went down – even when the property is sold, the proceeds from the sale might not be enough to repay the outstanding loan. Family ends up with no money, no house.
Either way, you put your family in the risk of having no roof over their heads. This might also lead to a decrease in the standard of living.
In the event of disability
Disability also means financial death and income stops coming in. Again, the loan repayment rest on the surviving spouse.
Other considerations
When planning your mortgage insurance, you should also consider
- The coverage amount
- Single or joint life basis
- Interest rate assumption
- Supplementary benefits such as coverage for Critical Illnesses
You will need to talk to a financial planner to tailor a mortgage insurance plan for your property.
Buying mortgage insurance early will also in lower premium and thus saves you money. In a nutshell, I would describe mortgage insurance prevents your biggest asset from becoming your biggest liability.
