The COVID-19 pandemic is not just a health crisis, but an economical one as well.
With small and medium business owners potentially shutting down due to the movement control order (MCO), many citizens and property investors are concerned about their livelihoods.
Onn 27 March 2020, the Malaysian Prime Minister announced a whopping RM250 billion stimulus package comprising of loan deferments, one-off cash assistance, credit facilities and rebates, and direct fiscal injections worth RM25 billion.
While the bulk of the package seems to be targeted towards the B40 group – citizens in the bottom 40% household income range – existing property investors can take advantage of some of the policy changes. A key highlight is the automatic six-month loan deferment.
What is the loan payment deferment?
This loan repayment deferment, or loan moratorium policy, exempts citizens from paying back their loans for the six months starting 1 April 2020. This includes any conventional loans or Islamic financing repayment obligations, with the exemption of credit card loans.
Bank Negara Malaysia (BNM), or the Malaysian Central Bank, has issued a straightforward FAQ on this particular subject. BNM clarifies that borrowers need not apply for the loan moratorium from their banks, as the process is automatic.
However, make no mistake thinking that you have been awarded six monthly instalments worth of free cash, because the remaining balance on your loans will continue to accumulate during the deferment period along with its interest rate charges. This could result in a higher monthly instalment amount or an extension to the loan tenure.
While the central bank has issued such guidelines, it is up to the local banks to properly enforce them. By default, the interest on your mortgage loan will be compounded because property owners are technically defaulting on their loans for six months.
Which banks offer this loan moratorium?
Fortunately, several banks have publicly announced that they will not be compounding the interest during the six-month moratorium period for their respective customers.
The banks in question include:
- RHB Bank
- Public Bank
- CIMB Bank
- OCBC Bank
- HSBC Bank
- Affin Bank
- UOB Bank
- Citibank Malaysia
While all of these banks will not compound their interest, each bank has their own separate terms and conditions for this newfound policy. Note that terms may also differ if you opt for an Islamic loan as opposed to a conventional mortgage loan.
If you have taken out of the mortgage loans from the banks listed above or from any other bank, it is highly recommended that you visit their Frequently Asked Questions page to learn more about their mortgage loan moratorium policy and determine if it is a good fit for you.
Should you opt for the loan deferment?
As a disclaimer, Ohmyhome does not hold a financial planner license and we are not legally fit to provide financial advice to our readers. We can, however, share some of the facts and offer recommendations or insights.
It is important to note that people have different needs at this point in time. Some people who have job security and a hefty emergency fund may choose to opt out of the loan repayment moratorium in order to save on the interest accrued.
However, not every property investor and owner has the capacity to do so. For those who will struggle financially in the following months due to the pandemic, consider applying for the loan repayment moratorium. It will provide the much needed cash flow to keep your head above the water amid these trying times.
How much will you save?
A local property expert has actually done the math and determined that the total amount of interest incurred is negligible in the grand scheme of things.
Assuming a property owner has obtained a RM500,000 loan at the start of the loan moratorium period, at a standard interest rate, the total amount of damage incurred is RM20,714 in exchange for RM11,355 worth of immediately freed up capital.
|Principle Amount||Total Interest Paid||Total Amount Paid||Monthly Instalments|
|Without deferment||RM 500,000||RM 412,032||RM 912,032||RM 2,533|
|With deferment||RM 511,355||RM 421,391||RM 932,746||RM 2,591|
|Difference||RM 20,714||RM 58|
He argues that property owners should use the freed-up capital for other much more urgent purposes, such as paying off credit card debt, serve as an emergency fund, or to invest in other asset classes to diversify their investment portfolio.
From a general perspective, the pros do outweigh the cost, especially when your local bank offers a non-compounding interest policy on loans during the moratorium period.
Each of us is responsible for our own finances, no matter the financial advice which has been put forth. It is best to do your own research and calculation to determine if a loan deferment is right for you.
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