Discussing death is often a taboo in Asian society. Many view such a discussion as inauspicious or rude, but it is only through a frank and honest discussion about it that we can talk about what happens after we pass on.
Most of us have not thought long and hard about what we leave behind, because getting past the thought of death is so hard to deal with and the idea of your loved ones being without you is equally so. Yet this is perhaps the most important discussion you can have, and will define how your loved ones remember you, even after you’re gone.
How can I leave this world, knowing that my spouse and children are well provided for? Or at the bare minimum not burdened by my passing. This is a multi-faceted question which requires much thought and research, but for today, we will focus on one aspect, specifically what happens to your mortgage when you pass on and how to best structure it to protect your loved ones.
Whilst it is often thought that in death, the ownership of your home would be distributed according to your will or according to the Intestate Succession Act, the reality is quite different and is very much based on the structure of your home ownership.
If you and your next of kin own the home under a Joint Tenancy, the right of survivorship will apply. This means that whatever ownership you have in your home, will automatically be transferred to the other co-owners along with any home loan debt left unpaid, accompanying it. This would of course mean that any home loan debt left behind would have to be restructured.
Tenancy In Common
If you own your home under a tenancy in common structure, your ownership of the property will be distributed as per your will or based on the Intestate Succession Act if you have no will. The distribution of your home will be accompanied by a corresponding amount of home loan debt accompanying it, so any remaining home loan debt may have to be restructured.
According to a survey conducted with 300 private property owners by OCBC Bank in 2011, 59% of them do not have protection plans and many felt that the premiums paid for such plans were in most circumstances “wasted”. If you are like the aforementioned 59% and do not have mortgage insurance, here are a few scenarios that may play out:
Scenario 1 – Your Next Of Kin Takes Over The Mortgage And Gets Burdened With More Debt
Should you pass on your property to your next of kin, they can continue making payments for the house, provided the bank approves them to take the loan. Which is to say that your next of kin would have to pass their Total Debt Servicing Ratio (TDSR) and various other bank checks. Whilst this isn’t the worst thing that could happen, it still leaves your next of kin with more debt that may take quite a bit of time to service
Scenario 2 – Your Next Of Kin Can’t Take Over The Mortgage And Has To Sell The House
If however, your next of kin is unable to get approved for a mortgage, they may be forced to sell their home. This is perhaps one of the worst scenarios that may play out and adds to the grief of having just lost their loved one.
Scenario 3 – Your Estate Uses The Home To Pay Off Other Debts Leaving Your Next Of Kin Without A Home
If you should have other liabilities beyond your home loan, this might be the worst thing that could happen to you and your next of kin, potentially leaving them without a home. In this scenario, should your estate have insufficient funds to repay any existing debts, the estate may sell your home and use the proceeds to pay off any other debts that you may have.
This is of course the worse scenario, because it leaves your next of kin homeless and with little they can do as your assets are seized and sold to repay debts.
As you can see, being unprotected could cost your loved ones dearly. In the best of circumstances, the remaining members of your family would be left heavily burdened by a mortgage they would now have to shoulder, in the worst of circumstances, they could be left homeless.
The scenarios that we mentioned above are not uncommon ones, they have happened before and could happen to you. This is what makes Mortgage Insurance so important. Mortgage insurance helps to reduce the balance of your outstanding mortgage loan and in some cases fully pays off the outstanding loan in the event of your passing. The best part? Mortgage Insurance can be pretty affordable! With annual premiums starting from as low as $295/ year, you can get peace of mind for your family for just under $1/Day. Remember, no one knows when misfortune can strike, so it always better to be on the safer side of things.
*Note: Some banks require the purchase of mortgage insurance as part of their home loan/ home loan refinancing packages, so do remember to check if you’re already covered.
Refinancing is part and parcel of the home loan process and can help you save tens of thousands of dollars. With rates as low as 1.25%, your cost savings could more than cover any mortgage insurance payments that you would make. Achieve great annual cost savings through refinancing and get protected with mortgage insurance for next to nothing, Click here to compare the best home loan and refinancing packages!
We hope that we’ve helped you understand the importance of mortgage insurance and how it can help you better protect your family. If you think we’ve left something important out, feel free to drop us a comment below. Love what we wrote? Share us on Facebook or Twitter!