Buying your own house is a dream coming true. If you are a young adult who has decided to purchase property, you are probably excited about the freedom that having your own space will bring. If you’ve been renting for years now, having real property that you can call your own is a major life milestone.
However, not everyone can afford to finance the purchase price using money from their pocket. While saving for such a big purchase is best, it would take years to save up completely for a house. Yes, even if you save aggressively and set strict spending rules for yourself, it would take time.
But when you have found your dream house or an attractive property, more often than not, you will have to act fast. The demand for such property is likely to be high, and you need to reserve your spot as soon as you can, or you will let the opportunity pass you by. Hence, most prospective homebuyers apply for loans from legalised money lenders in Singapore, banks, or financial institutions. Applying for a housing loan and a mortgage will fast-track your purchase of a house.
However, before you fill out those forms, research and learn about the housing loan options available to you. One of those is mortgage insurance
What is Mortgage Insurance?
Mortgage insurance is a type of insurance policy. Its purpose is to protect a mortgage lender if the borrower defaults on payments, passes away, or becomes unable to meet his obligations on the mortgage.
Given the nature of a housing loan and the loan amount, a lender assumes a considerably high risk when it approves a housing loan and mortgage for an individual. There is a possibility that the individual will not be able to pay the loan or default in payment. Although the lender can evaluate the current financial status of the borrower, there is no way to predict the future.
Unforeseen circumstances that can affect the borrower’s economic situation might happen. The borrower might get diagnosed with terminal illness or might get sick and lose his capacity to earn. The borrower might get fired from his job and make payment of monthly amortizations difficult or even close to impossible. This is where a mortgage insurance comes in,
If you are wondering whether or not mortgage insurance is mandatory before your mortgage application is accepted, it will depend on where you are applying for a housing loan. Mortgage insurance is usually a requirement for Housing and Development Board (HDB) mortgages in Singapore. The HDB is the public housing authority in Singapore. The reason behind the requirement is the high loan-to-value (LTV) ratio for HDB mortgages which in turn creates a bigger risk of default.
Should You Get Mortgage Insurance?
If you are not required to get mortgage insurance but you are thinking of getting one, here are some points that may help you decide. These are some instances when having mortgage insurance is considerably beneficial.
1. When You Have a Low Down Payment
If your required down payment is 25% of the total value of the property or less, mortgage insurance is beneficial. With a low down payment, lenders may treat your mortgage as high risk due to the higher loan-to-value ratio. If you have mortgage insurance your lender will be reassured. If you are still applying for a loan, this will likely increase the likelihood of loan approval despite the lower initial payment.
2. When You Want Protection Against Unforeseen Circumstances
Look at mortgage insurance as a means of protecting not only your lender but also you as the borrower and your family. In case unfortunate things happen such as disability or death, if you have mortgage insurance, it will ensure that the outstanding loan amount is covered. In turn, you will be protecting your family and your loved ones from inheriting debt in the event of your death.
3. Mortgage Insurance is Accessible and Affordable
Ask your lender if they also offer mortgage insurance or if they have partnerships with insurance companies that offer this product. If they do have this or have partner businesses who offer this product, you can request that the premium be included in your monthly mortgage payments or if your lender is a bank, you can even suggest an auto debit to your account. This will make it convenient and accessible to secure additional protection for your investment.
4. You can Negotiate Flexible Loan Terms
Many mortgage insurance policies offer flexible terms and coverage options. You just need to do enough research and ask for information. Make sure you are getting the correct information from reputable sources.
Flexible terms allow borrowers to tailor the insurance to their specific needs and preferences. This flexibility in loan terms ensures that borrowers can find a mortgage insurance solution that aligns with their specific requirements and provides optimal protection
It can even provide borrowers added flexibility and control over their financial protection strategy. Some mortgage insurance policies allow for adjustments over time. Be sure to ask your insurance provider about this as this will be important in case your financial circumstances change.
5. High Property Prices
It is no secret that properties in Singapore come with a high price tag, especially real property such as houses and lands. Since you will need to borrow a significant amount to finance your purchase, your loan comes with a substantial financial risk. With property prices often exceeding affordability thresholds, mortgage insurance provides a safety net by covering a significant portion of the loan, reducing the financial burden on borrowers. Asking your Chinatown money lender about mortgage insurance is worth a shot.
Conclusion
Mortgage insurance might not be a requirement for your housing loan application but if you would rather sleep soundly at night while you have an outstanding loan, availing of one can be a good strategy. Change and uncertainty are always present, especially in the financial landscape. The inflation rate is always on the rise and we are always hanging by a thread in terms of recession. By having mortgage insurance, you will have a “Plan B” in case your financial circumstances change.