HDB Mortgage insurance or Third Party Mortage insurance

[Andrew Ng]

Hi Dennis,
When i purchase my HDB flat, HDB deducted about 400+ per year for mortgage insurance and i was told it is necessary. Is it worth continueing with HDB or better to choose a third party mortgage insurance that is linked to an investment element such that when the mortgage mature, we can cash back on our money and hopefully, some with some interest.
regards
Andrew

[Dennis Ng]

Dear Andrew,

I have written quite a comprehensive article on HDB HPS vs Mortgage Insurance from insurers, here it is:

Many people are not fully informed of how "Home Protection Scheme"(HPS) works. If you have a Housing Loan, my opinion is that you better have some HPS or Mortgage Insurance to ensure that should anything happens to you, your family will not be burdened by having to pay your ?share of the Housing Loan instalment?.

Here's what I wrote for your easy reference. If you got other questions, feel free to call us at 6737 8801 or 6339 9255 or email to us at info@HousingLoanSG.com

You can also ask questions at "Leverage Internet Discussion Forum"

http://www.housingloansg.com/forum/phpB ... ebb046e8f8

Cheers!

Dennis Ng
Leverage Holdings Pte Ltd
6737 8801 or 6339 9255
http://www.leverageholdings.com - we help you get BEST deal in Housing Loans & Business Loans in Singapore!

http://www.HousingLoanSG.com

http://www.BusinessLoanSG.com

All about Home Protection Scheme (HPS)

The reported news on a widow whose claim on her Home Protection Scheme (HPS) (a mortgage reducing insurance provided by CPF) was rejected highlighted the deficiencies in HPS and the problem that most people are not aware of these deficiencies and what risks are they subjected to.

Fret not, as I've summarised them below:

What is Home Protection Scheme (HPS)?
HPS is a mortgage (housing loan) reducing insurance plan provided by CPF. Similar plans are offered by Insurance cos and unlike HPS which is rigid, plans by Insurance cos can be "tailored" to suit your needs.

Is HPS compulsory?
CPF has made HPS compulsory from 1 Nov 1981 for anyone who purchase a HDB flat (whether new or resale flat) and who uses CPF to pay for the monthly instalment repayment (whether partial or fully).

It is not compulsory for someone who uses Cash to buy a HDB flat and ONLY uses cash to pay for monthly instalment.

What most people don't know:
It's not compulsory to get the coverage by CPF, you can actually get your own coverage from Insurance cos and you most probably would if you know the deficiencies of HPS from CPF

Deficiencies of HPS compared to plans offered by Insurance company

1. Strangely, the HPS cover only take effect after you take legal possession of the flat. For Insurance cos, once premium is paid, even if the application is still under underwriting (processing), a temporary cover for accidental death takes effect immediately. In this case, the widow's husband died from accident and she can claim if she had taken an insurance policy from Insurance co. Please note that in this case, CPF already approved the HPS application.

2. Cover is specific to the flat. If you sell your HDB flat in future, even if you buy another HDB flat, the existing insurance policy will be terminated and you have to purchase a new policy. You will have to pay premium based on you age then, thus you definitely pay higher premium. Someone in 40s typically pays about 50% higher premium compared to someone in 20s, so the difference can be substantial.

Most importantly, the risk is should you develop any health condition before you purchase the new house, you run the risk that you will be rejected HPS cover. This can happen and has happened. If you get a similar plan from Insurance co, this does not happen as your policy can be continued no matter how many times you moved house. Rarely do people stay in the same house throughout their lives, so this risk is something that is serious yet overlooked by most people.

3. it only covers death and total permanent disability. It doesn't cover critical illnesses. Thus, even if you have HPS and a critical illness strikes, you still need to continue to pay the housing instalment. Plans from Insurance cos can be tailored to cover critical illness.

4. Rigid and inability to suit your needs HPS is rigid and there's only 1 specific plan. Each person's situation differs and you can actually tailor a plan to suit your needs if you get it from an Insurance co.

Insufficient information given to public. If you buy a HDB flat, at HDB office, they will just tell you HPS is compulsory and they're deducting the premium from your CPF a/c. The problem is you're not told:
1. what HPS covers and what it does not cover
2. that you can get coverage from other Insurance cos
3. difference in coverage between HPS and plans by Insurance cos.

As a result, most people just "blindly" accepted HPS without considering the possible consequences.

If you find this information useful, please forward it to your friends so that such tragic cases will not be repeated in future.
_________________
Cheers!

Dennis Ng
http://www.leverageholdings.com

[Andrew Ng]

Hi Dennis,
Maybe to be more specific, I call up CPF to check and they told me as long as i use my CPF money for housing loan, it is compulsory to get HDB mortgage insurance. Is this a new ruling ?

And they also told me that if i am 100 % insured and if my wife buy another insurance that is 100% insured, and should anything happen to my wife, the mortgage will be fully paid up even if nothing happen to me. Is that true ?

regards
Andrew

[Dennis Ng]

dear Andrew Ng,

the HDB officer is not telling you the truth. The mortgage insurance can be HDB or from private insurer.

Cheers!

Dennis Ng

[Dennis Ng]

[quote="whizzkizHi Dennis,

Is the any written ruling to this that we buyer can use to proof to the CPF or HDB officer that we are allow to engage private mortgage insurance for cover?

I'm currently in the process of buying a 4rm HDB and my 1st appointment has been set on 4th Sep 2006.

Any advice you could provide is much appreciated.

Henry[/quote]

My comments:
Dear whizzkizhi,

for people taking a Housing Loan from HDB, HDB would provide one page of information which shows purchase price and planed Housing Loan amount.

for people taking a Housing Loan from Bank, Bank will provide you with a "Letter of Offer" detailing the loan amount, interest rate and loan period.

depending on your situation, you just need to present the relevant information (from HDB or Bank depending on from whom you get a loan from) to the private insurer.

[Dennis Ng]

Dennis,

Since buying a HDB generally involve at least a minimum of 2 or more owner (eg. husband & wife or among siblings or son & parents).

1) Do all involve owner need to be cover by HPS?

2) If needed to, how do CPF decide the ratio of coverage by individual owner?

3) If we decided not to be cover by HPS, what type of mortgage insurance are there in the market we should look for?

Henry

My comments:
1. it involve ALL owneers who WANT to use their CPF to pay for the house.

2. CPF need total coverage to be at least equal to the loan amount. eg. husband and wife buy a house and choose to EACH cover 50% of the loan amount.

3. you can get Mortgage Insurance from private insurers (all insurers have this plan). The terms are pretty standard, thus the key is to look for a reliable insurer which charges reasonable premiums.

Please note that HPS you can use CPF to pay premiums. Private insurers, you need to use cash to pay premiums.

[Dennis Ng]

Dear Henry,

actually at first appointment, if the Mortgage Insurance is not ready, you can just tell the HDB officer that you will arrange for Mortgage Insurance yourself. Make sure you get it approved and able show proof to HDB officer by the 2nd appointment.