Normally, people take MRTA when applying for a home loan. And why is that?
If you do, I think you should read this post.
When a borrower applies for a home loan with the bank, the bank will require the borrower to get an MRTA.
In exchange, the borrower will get better interest rates.
This is quite common in the industry, the MRTA suppose to protect you as a borrower but in the bigger picture, the bank is protecting themselves by making sure they are well protected by getting you insured.
Do you know the MRTA can be the cause of a late payment?
I think not many people know this, but another insurance company usually handles MRTA.
Another insurance company might be a third-party insurance company or another subsidiary of a bank entity that owns it. But still, it is under different management and people.
So, once your loan is approved, it doesn’t mean your MRTA will be approved too. Usually, it does, but sometimes it is not.
Many people think, once the loan is approved, the MRTA is approved too. Well, this is the wrong way to look at it.
Usually this is how it goes
Once you have signed the bank letter offer, the bank officer will submit your MRTA application to the insurance company.
The insurance company will review the information/application, and sometimes it will be approved or rejected.
Or sometimes it will say “loading”. Usually, the borrower needs to pay more premium because of other reasons like overweight or pre-existing disease, etc.
Here’s the thing.
If the insurance company rejects the MRTA application, the borrower’s interest rates will be revised.
This means a new supplementary Letter offer will need to be issued.
The same goes for the “loading” case.
The usual problem.
Here comes the problem.
Sometimes there is a lack of communication between the insurance company and the bank.
And just about the bank is rushing to release the first disbursement to the seller or developer, they encounter this issue.
Sometimes, the datelines are around the corner. And they can’t release the disbursement without the supplementary letter offer.
And this caused the delay of disbursement, and guess who will be charged for the late payment?
YOU!! Yes, you.
The bank rarely admits its mistakes. But, you can appeal for the late payment.
Sometimes if you are lucky, the bank will pay for you. But it is a long process and takes time.
Okay, let find a solution for you.
Let’s admit, no one likes to pay the late payment.
So, how to avoid all this?
For a start, you can follow up with the banker.
Ask the banker to check for you.
Is your MRTA approved?
Make sure it was approved 1-2 months before the first disbursement.
However, some banks have taken proactive measures by releasing the payment before settling the MRTA issue.
They usually won’t.
Do you know why?
The bank is afraid.
In my own experience, I have once encountered a bank that goes ahead and makes the first disbursement before releasing the MRTA premium to the insurance company.
The borrower passed away after the first disbursement.
And since the MRTA premium hasn’t been paid, technically, the borrower is not covered.
And the bank is not able to recover their debts from the insurance company which is faster.
So, yeah. That’s the reason.
By the end of the day, I guess it depends on the bank and its approach.
But you can do your part by checking your MRTA application status from time to time.
And avoid such a headache issue in the future.
I hope you learn something today!
And enjoy this article – Do you take MRTA when applying for a home loan?
If you have any further questions, please feel free to reach us at +6012-6946746.
Before you go, you might want to read this.
Mortgage Reducing Term Assurance ( MRTA ) Vs. Mortgage Level Term Assurance (MLTA) – Which one is better?