MRTA vs Term Insurance: Which Mortgage Protection Improves Your Approval Chances?
When applying for a home loan in Singapore, your choice of mortgage protection significantly impacts both your approval chances and long-term financial flexibility. MRTA (Mortgage Reducing Term Assurance) and level term insurance serve different purposes, and understanding their differences is crucial for making an informed decision that aligns with your property goals and lender requirements.
At Homejourney, we believe transparent financial guidance is essential for building trust in your property journey. This guide breaks down how each insurance type works, how they affect your mortgage approval, and which option positions you best for success—whether you're a first-time buyer or planning future property upgrades.
Understanding MRTA: How Decreasing Coverage Works
MRTA is a decreasing term insurance policy specifically designed for mortgage protection. Unlike traditional insurance with fixed payouts, MRTA's coverage amount decreases proportionally to your outstanding loan balance.[1] This means when you first take out the policy, coverage is at its maximum—matching your full mortgage amount. As you make monthly repayments and your loan balance shrinks, your insurance coverage automatically decreases in tandem.[2]
Here's the critical point that many borrowers miss: while your coverage decreases, your premium remains fixed throughout the policy term.[3] This creates an interesting dynamic—you're paying the same amount each month for progressively less coverage. For a 40-year-old non-smoking male with a $600,000 home loan over 25 years, MRTA premiums might be significantly lower than other options, making it attractive for cost-conscious borrowers.[2]
MRTA is particularly common for private property purchases (condominiums, landed homes, and executive condominiums) where lenders often require or strongly recommend this protection. Some banks bundle MRTA with your housing loan at preferential rates, making it a convenient add-on during the mortgage application process.[1]
Level Term Insurance: Fixed Coverage, Consistent Protection
Level term insurance maintains the same sum assured throughout the entire policy period.[2] If you purchase $1,000,000 in coverage, that amount remains constant whether you're in year 1 or year 25 of your policy. This fundamental difference creates distinct advantages for borrowers planning long-term property strategies.
Because coverage doesn't decrease, level term insurance provides flexibility beyond just covering your current mortgage. If a claim occurs 10 years into your policy, the full payout is available—not just the remaining loan balance.[2] This excess coverage can support your family's broader financial needs beyond mortgage servicing, such as education expenses, living costs, or other debts.
Importantly, level term insurance is portable across properties.[1] If you refinance your home loan, switch banks, sell your property, or purchase additional properties in the future, your coverage continues unchanged. This portability is invaluable for property investors or families planning to upgrade homes, as you don't need to reapply or undergo new underwriting each time you restructure your mortgage.[1]
How Insurance Type Affects Mortgage Approval Chances
Banks assess mortgage applications based on multiple criteria: income, employment stability, credit history, debt-to-income ratio, and loan-to-value ratio. Your choice of mortgage protection influences approval in subtle but important ways.
MRTA advantages for approval: Banks view MRTA favorably because it's specifically designed for mortgage protection and demonstrates your commitment to safeguarding the loan. When lenders bundle MRTA with your mortgage at preferential rates, accepting their offer signals financial responsibility. The lower premiums associated with MRTA also improve your debt-to-income ratio—a key metric banks use to assess your ability to service the loan. If your debt-to-income ratio is already tight, MRTA's affordability can make the difference between approval and rejection.[1]
Level term insurance advantages for approval: While banks don't explicitly require level term insurance, choosing this option demonstrates financial sophistication and long-term planning. For borrowers with strong income profiles and multiple properties, level term insurance shows banks you're thinking beyond a single mortgage. The portability feature also appeals to banks because it suggests you're a stable, forward-thinking customer likely to maintain relationships with the institution through refinancing and future transactions.
The approval impact ultimately depends on your financial profile. First-time buyers with moderate incomes often benefit from MRTA's lower premiums, while established property owners or investors with stronger financial positions may find level term insurance's flexibility more valuable.
Key Differences: A Practical Comparison
Understanding these distinctions helps you make the choice aligned with your circumstances:
- Coverage Amount: MRTA decreases over time; level term stays fixed throughout the policy term.[1][2]
- Premiums: MRTA premiums remain constant despite decreasing coverage; level term premiums also stay fixed but you're paying for consistent coverage.[3]
- Payout Flexibility: MRTA typically pays out just enough to cover the remaining mortgage balance; level term can provide excess coverage for other needs.[1]
- Portability: MRTA ends when you refinance or sell the property; level term continues regardless of mortgage changes.[1]
- Cost Efficiency: MRTA is generally more affordable upfront; level term costs more but provides greater long-term flexibility.[1][5]
- Future Property Planning: MRTA requires new policies for each property; level term can be reused across multiple properties.[2]
Practical Steps to Improve Mortgage Approval Chances
Regardless of which insurance type you choose, these actionable steps strengthen your mortgage application:
- Calculate Your Eligibility First: Before approaching banks, use Homejourney's mortgage eligibility calculator to understand your borrowing capacity. This gives you realistic expectations and helps you focus on properties within your range, improving approval likelihood.Bank Rates
- Optimize Your Debt-to-Income Ratio: If choosing MRTA, the lower premiums improve this critical metric. If selecting level term insurance, ensure your overall debt obligations (including the new mortgage and insurance premium) don't exceed 60% of your gross monthly income.
- Gather Documentation Early: Prepare recent payslips (last 3 months), tax returns (last 2 years), CPF statements, bank statements, and employment letters before applying. Banks move faster when documentation is complete.
- Compare Rates Across Multiple Banks: Different banks offer different insurance bundling options and rates. Use Homejourney's bank rates comparison to see how DBS, OCBC, UOB, HSBC, Standard Chartered, Maybank, and other partners structure their mortgage packages.Bank Rates
- Apply Via Singpass for Instant Data Verification: Homejourney's Singpass integration auto-fills your income, employment, and CPF data instantly, reducing processing time and approval delays.Bank Rates
- Submit to Multiple Banks Simultaneously: Rather than applying to one bank at a time, use Homejourney's multi-bank application feature to submit your details to all major banks at once. This increases your approval chances and gives you competitive offers to compare.Bank Rates
- Choose Insurance Based on Your Property Timeline: If you're planning to upgrade properties within 10 years, level term insurance's portability justifies the higher premium. If this is your forever home, MRTA's cost-efficiency may be the better choice for approval purposes.
Real-World Scenario: When to Choose Each Option
Choose MRTA if: You're a first-time buyer with a moderate income, this is likely your primary residence for the next 20+ years, and you want the lowest possible monthly commitments to improve your debt-to-income ratio. MRTA's affordability makes sense when every dollar of monthly savings impacts your approval chances.
Choose Level Term Insurance if: You're an established property owner, have strong income stability, plan to upgrade properties in the future, or want flexibility if your circumstances change. The higher premium is justified by portability—you won't need to reapply for insurance each time you refinance or purchase a new property.
