OCBC launches new mortgage insurance plan

[reporter2]

http://www.businesstimes.com.sg/brea...-plan-20121203

Published December 03, 2012

OCBC launches new mortgage insurance plan

By Teo Si Jia


OCBC Bank on Monday unveiled a mortgage insurance plan that returns collected premiums to customers at the end of the policy term if no claims have been made.

According to the bank, the percentage of home loan customers who do not buy mortgage insurance has remained relatively flat over the years, even though customers have taken larger loans as a result of rising home prices.

In a survey it conducted with 300 private property owners last year, 59 per cent did not have mortgage insurance.

OCBC came up with the Mortgage Protector Advantage - underwritten by The Overseas Assurance Corporation - to address this market

[Tripp]

This looks interesting. Is this a first in Singapore?

Are we eligible to apply for this mortgage insurance plan with home loans by other banks? Or strictly OCBC home loans only?

[Arcachon]

Can make money who don't want.

[lionlamb10]

oac already has a mortage plus insurance which returns premium if unclaim after 30yrs. I think u get 75% - 85% premium bk if u cancel before 30yrs. But u need to pay the lump sum premium upfront. alternatively oac can offer a installment plan with interest.

find this quite a gd plan if u ignore time value of $, the cost of the plan = interest which is cheaper than most mrta plans.

[Tripp]

http://www.ocbc.com.sg/personal-bank...or-series.html

[FREDDIE]

oac already has a mortage plus insurance which returns premium if unclaim after 30yrs. I think u get 75% - 85% premium bk if u cancel before 30yrs. But u need to pay the lump sum premium upfront. alternatively oac can offer a installment plan with interest.

find this quite a gd plan if u ignore time value of $, the cost of the plan = interest which is cheaper than most mrta plans.

you know the plan named?

[Shanhz]

no free lunch. maybe someone who happens to need a MRTA can check out the package and let us know. the premiums for the refundable policy will be higher than the non-refundable policy. comparing between the 2 and working out the difference taking into time value of money, and we will know what is the imputed "interest rate" or rate of return. if you can invest on your own and get better returns, then better to take non-refundable.

[EBD]

they will also be returning you the dollar value contributed, not inflation adjusted I would think.

If they charge a higher premium from current mortgage cover I guess they can make exactly the same money from both schemes.

What? You didn't expect a bank to be that nice to you , did you?

[Sleepyhead]

I called to kepoh today.

Premium is $5.8k p.a.
After 30 years, can get back $174k.

Equivalent premium for no refund of premium product is $2.8k.

Can gurus here pls help? Ok boh?

[Rosy]

I called to kepoh today.

Premium is $5.8k p.a.
After 30 years, can get back $174k.

Equivalent premium for no refund of premium product is $2.8k.

Can gurus here pls help? Ok boh?

What is the loan size and your age? 5.8k is very high for mortgage insurance.

[Sleepyhead]

[QUOTE=Rosy]What is the loan size and your age? 5.8k is very high for mortgage

Age and loan size don't matter,,, just trying to compare the new product vs existing ones in the market..

Yes, $5.8k is of course high... The equivalent scenario will normally ask for 2.8k premium. My question is, is the refund of $174k in 30 yrs time worth the $3k more per year over next 22 yrs? (22 coz you stop paying premiums then)...

[Shanhz]

Yes, $5.8k is of course high... The equivalent scenario will normally ask for 2.8k premium. My question is, is the refund of $174k in 30 yrs time worth the $3k more per year over next 22 yrs? (22 coz you stop paying premiums then)...

bro, can you confirm:
2.8k premium-how many years you pay (22 or 30 or in between)
5.8k premium-pay for 22 years but get back only after 30 years?

[Sleepyhead]

bro, can you confirm:
2.8k premium-how many years you pay (22 or 30 or in between)
5.8k premium-pay for 22 years but get back only after 30 years?

2.8k is for all 30 yrs.
5.8k pay for 22 yrs and get back full refund of 174k upon 30 yrs.

[Sleepyhead]

bro, can you confirm:
2.8k premium-how many years you pay (22 or 30 or in between)
5.8k premium-pay for 22 years but get back only after 30 years?

Correction:
$2.8k to pay for 27 years.. Coverage with no refund for 30 years.
$5.8k to pay for 22 year.. Coverage with full refund after 30years.

Someone help me work out the implicit interest rate on the additional $3k and whether worth it or not? I'm not so clever. Thank u!

[Rosy]

How many of us actually hold their properties for 30years? What if enbloc comes along before that?

[Rosy]

2.8k is for all 30 yrs.
5.8k pay for 22 yrs and get back full refund of 174k upon 30 yrs.

You have to hold on to the policy for 30years with no claim to get the full refund. If u pass away during the last 1-3years of the policy term, there goes you full refund and sum assured is alot lesser.

[leesg123]

[quote=Sleepyhead]

What is the loan size and your age? 5.8k is very high for mortgage

Age and loan size don't matter,,, just trying to compare the new product vs existing ones in the market..

Yes, $5.8k is of course high... The equivalent scenario will normally ask for 2.8k premium. My question is, is the refund of $174k in 30 yrs time worth the $3k more per year over next 22 yrs? (22 coz you stop paying premiums then)...

2.8k also is very high! unless you are covering interms of millions.

[Shanhz]

bro, did a rough calculation (coz i also interested to know).

based on this new product, the fixed return over 30 years is 46k (174-128k)

not sure if i'm right - but based on my numbers, if you pay 2.8k/year and invest the rest, you need to hit a return of 5.2%pa to match the 46k return. ie: all things equal, the new product's returns are decent.

however, do remember to compare OCBC vs say aviva (which is quite cheap, probably 20% cheaper). the 2.8k coverage might be cheaper with aviva than ocbc. also, you need to stick with OCBC all the way, and must outlive the policy to take back your returns.

i would think that you are better off getting an aviva policy and investing your spare cash.

[buttercarp]

Correction:
$2.8k to pay for 27 years.. Coverage with no refund for 30 years.
$5.8k to pay for 22 year.. Coverage with full refund after 30years.

Someone help me work out the implicit interest rate on the additional $3k and whether worth it or not? I'm not so clever. Thank u!

$2.8k for 27 years = $75.6 k
$5.8 k for 22 years = $127.6 K

1st scenario lose $75.6 K
But $3 k saving for 27 years = $81 K, save $3k for another 3 years = $9k
So at the end of 30 years have $90K.

2nd scenario after 30 years get back $127.6 k.

Difference is 127.6- 90 = $37.6 K

This looks attractive on the surface.
It is good if the mortgage insurance is independent of the loan tenure.

Some questions:
What if your mortgage loan is less than 30 years, will the insurance run as per normal up to 30 years?
If not, then will you be paid back the amount if you choose the 5.8k option?
What happens when you sell off your property, will the insurance continue?
Must you continue to pay the 5.8 k for 22 years to get back the principle at the end of the 30 years?

[Trigger]

Correction:
$2.8k to pay for 27 years.. Coverage with no refund for 30 years.
$5.8k to pay for 22 year.. Coverage with full refund after 30years.

Someone help me work out the implicit interest rate on the additional $3k and whether worth it or not? I'm not so clever. Thank u!

Does the $2.8k include death, critical illness and TPD? I suppose this is for a quantum of say $750k?

[Shanhz]

2nd scenario after 30 years get back $127.6 k.

sis, after 30 years get back 174k.

[buttercarp]

sis, after 30 years get back 174k.

@Sleepyhead, please clarify this amount cos in your later post you mentioned pay 5.8k for 22 years, so that's a total of $127.6 k.

Initially he said this.....

2.8k is for all 30 yrs.
5.8k pay for 22 yrs and get back full refund of 174k
upon 30 yrs.

Then he made the correction.......

Correction:
$2.8k to pay for 27 years.. Coverage with no refund for 30 years.
$5.8k to pay for 22 year.. Coverage with full refund after 30years.

Someone help me work out the implicit interest rate on the additional $3k and whether worth it or not? I'm not so clever. Thank u!

[Sleepyhead]

Sorry for not being clear... let me clarify..

Scenario 1: Pay $2.8k pa for 27 years, covers 30 years reducing balance, no refund of premiums. Total paid $75.6k.

Scenario 2: Pay $5.8k pa for 22 years, covers 30 years reducing balance, full refund of premiums of up to $127.6k. This one is quite tricky to properly model, because, refund of premiums start after 7th year. Say, at 8th year, you surrender the policy, you will get back 40% of total paid. Thereafter, every additional year, the % you can get back will increase, until at 30 years, you get back 100%.

So, to answer someone's question earlier, you do get something back if you surrender the policy, but how much will depend on how early.

Difference in premiums is $52k, and that will 'grow' to $127.6k after 30 years.

Is this level of return worth it?

On the one hand, you can get decent return (according to one bro it's about 5%?) on your 'cash savings'.
On the other hand, this return, you can only get if you don't die! If you die within the 30 years, the insurance kicks in, pays out the amount you're insured for, and you lose the premiums paid.

And this covers Death and TPD. No critical illness cover included.

And no, this is not tagged to your mortgage / property. You can choose to sell your property, or fully pay up your loan, the policy will continue for as long as you continue to pay the premiums.

I cannot decide if this is a good deal or not.

That's why need gurus here to help! Thank you.

[Shanhz]

based on calculations and gut feel is, go for normal mortgage insurance, and invest your spare cash in a stable portfolio say 30% bond/70% equity or whatever, you should be able to beat the returns from OCBC over 30 years, plus you have full control over your investments + anytime you can switch ins co if necessary.

check out aviva. their pricing is competitive. i just got quote - $50/mth including CI premium waiver, for 500k cover, 2% intererst rate over 28 years.

the next cheapest (which is also the cheapest in the whole mkt) is HSBC, but many exclusions, better not.

[buttercarp]

On the other hand, this return, you can only get if you don't die! If you die within the 30 years, the insurance kicks in, pays out the amount you're insured for, and you lose the premiums paid.

This is good for your benefactors.

Scenario 2: Pay $5.8k pa for 22 years, covers 30 years reducing balance, full refund of premiums of up to $127.6k. This one is quite tricky to properly model, because, refund of premiums start after 7th year. Say, at 8th year, you surrender the policy, you will get back 40% of total paid. Thereafter, every additional year, the % you can get back will increase, until at 30 years, you get back 100%.

This is reasonable!

And no, this is not tagged to your mortgage / property. You can choose to sell your property, or fully pay up your loan, the policy will continue for as long as you continue to pay the premiums.

This is good as you can choose to pay the premiums until your children are self sufficient, then you stop paying the premium and is still able to get some of the premium paid!

My insurance with prudential is something like that except that it is not refundable.

@Sleepyhead, may I know what is the sum insured?
Must see the sum insured.
$5.8 k pa premium is not a small some.

[Sleepyhead]

This is good for your benefactors.

Yes, but even the $2.8k quote will pay out when you die. So, if you die, in effect you lose the $3k more that you pay every month.

@Sleepyhead, may I know what is the sum insured?
Must see the sum insured.
$5.8 k pa premium is not a small some.

$1m on reducing balance over 30 years.

[buttercarp]

$1m on reducing balance over 30 years.

Thanks for sharing!
That means the sum insured gets smaller and smaller as the years go by?
If that's the case, then it is not really worth it.

If the 1 mil is a fixed sum insured until the very last day you pay the policy, then it is worth considering if the 5.8 k premium is for either spouse, ie
if one goes, the other benefit 1 mil and not 500k payout for each spouse.

As for the 2.8k pa, assuming you pay premium for 20 years, it will be 56k lost. But if you think your children will be self sufficient earlier then say pay 15 years, it will be 42k lost. That's also not too bad. 42 k for the peace of mind.

[Shanhz]

you guys have been discussing about outright cost. dun forget to consider the investment value of the costs that is saved ($3k every month), which you can put into equities or any other investment tools which might yield you 4-5% p.a., and no need to tie down to any company at all.

[zzz1]

How many of us actually hold their properties for 30years? What if enbloc comes along before that?

The insurance is to insure the person and not the property ..even u sell off the property , u still be insured and can be carried on..

[Sleepyhead]

Thank you all for your comments and analysis. I have decided that that a normal no-refund policy is more advantageous than this OCBC one.

Cheers.