Separate Versus Joint Mortgage Insurance: Which is Better?

In Singapore, it’s more common for homeowners to have a co-borrower, than to purchase the entire property themselves.

The co-borrower is typically their spouse, although it might also be a child, sibling, in-law, or even a business partner (if the property is purchased purely as an investment).

This often raises the issue of who should purchase mortgage insurance; in particular, whether the policy should be held by just one of the co-borrowers, or multiple co-borrowers.

Here’s how it works out:

First, both co-borrowers should have mortgage insurance

This is because, if the co-borrower without the policy should pass away, the policy is of no real help. For example:

Say that you and your spouse are co-borrowers on a home loan.

You hold the mortgage insurance policy, so your home loan will be paid if anything happens to you (this benefits your spouse).

But what happens if your spouse (*touch wood*) passes away before you do?

You’d be obliged to pay off the outstanding loan on your own*.

It doesn’t matter that you have mortgage insurance, as it would only payout if you are the one to pass away, or are permanently disabled.

As such, it’s never a good idea to have only one co-borrower with mortgage insurance.

You cannot guarantee that the policyholder will be the first one to pass away, become disabled, etc.

*Note that even if you’re willing to take on your co-borrower’s share, the home loan repayment – plus any outstanding loans – cannot exceed 60 per cent of your total monthly income (TDSR). You might fail to qualify for the loan if your co-borrower is no longer contributing.

So… How does a joint policy work?

Most Singaporeans are joint tenants with their co-borrower.

For example, they and their spouse both own 100% of the property.

In this situation, mortgage insurance is simple: they take out a joint policy (and the premiums are just slightly higher).

In these cases, if one of the parties passes away, the other can still hold on to their share.

For instance, say your spouse is the co-borrower and co-owner.

If you were to pass away, your spouse could still hold on to their 50% share; but this often means someone else must take on the other share (e.g. a sibling, in-law, or whoever is willing to take on the other half).

If your share is paid off upon your passing though, your spouse won’t need to be co-owner with someone else; so mortgage insurance is still important.

A side-note for tenants-in-common

However, some Singaporeans may be tenants-in-common.

This is when each party owns a fixed percentage of the asset (e.g. you own 50%, while your spouse owns another 50%).

The common reason for this is to lower stamp duties when purchasing a subsequent property; do ask a qualified real estate agent or lawyer for more on this.

For tenants-in-common, you can also take out separate policies that specifically cover your share.

For example, say the outstanding loan is $1 million, and you each own 50%.

You can each take out a policy to cover your share of the outstanding mortgage (e.g. $500,000 for each).

Note that you can still use either reducing or level term insurance.

For HDB flat owners, consider getting joint mortgage insurance from a private insurer

The Home Protection Scheme (HPS) is the default scheme of HDB; this is a separate policy for both you and your co-borrower / co-owner.

But note that any payout HPS will go straight to HDB, and not to the co-borrowers.

Under private mortgage insurance, however, your co-borrower will be paid the outstanding mortgage in cash.

This can make an important difference in tough times.

For example, if there are more pressing expenses, and life insurance payouts have not yet come in, mortgage insurance can be used to cover those expenses first.

While it’s supposed to pay off the remaining home loan, you at least have the option to use it more flexibly.

In conclusion, joint mortgage insurance is highly advisable for most Singaporeans

There are situations where separate policies may be better; such as when the property loan is with a business partner, and you are tenants-in-common.

But for family units, there’s just little incremental cost in getting separate mortgage insurance plans instead of a single joint mortgage plan.

You can contact us if you need help finding the best policy, at competitive premiums.

Our wealth planning specialists will compare policies from 12 reputable insurance companies to find the most suitable coverage for your unique needs.

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