Those of you who are homeowners and are still serving the loan period may know that Bank Negara (BNM) has implemented a nationwide move to automatically apply a deferment on the loan repayments/mortgages for all borrowers in light of the current COVID-19 pandemic.
Before we go deeper into how this affects you and what you could do to benefit on the situation, these are the quick points to get your basic knowledge covered on the subject:
What is the deferment of loan or financing payment?
It is a temporary deferment or suspension of loan/financing payment obligation (principal and interest/profit) for a limited period of time. During this period, borrowers/customers with loan/financing that meet the conditions do not need to make any payment, and no late payment charges will be imposed. Borrowers/customers will need to honour the deferred payments in the future. Loan/financing repayment resumes after the deferment period and if such repayments are not fully settled when due, late payment penalties will be imposed. Interest/profit will continue to be added (accrue) on loan/ financing payments that are deferred and borrowers/customers will need to honour the deferred payments in the future. Loan/financing payment resumes after the deferment period.
Which loan/financing qualifies for the deferment?
For individuals and small and medium enterprises (SMEs), the deferment in conventional loans or Islamic financing payment obligations (except credit card) is automatically effected by Financial Institution’s (FI) if the loans/financing meet these criteria:
- not in arrears exceeding 90 days as at 1 April 2020; and
- denominated in Malaysian ringgit.
Meanwhile, corporate borrowers/customers may request a deferment on loan/financing payment from their respective FI’s.
Note that the rescheduling and restructuring (R&R) program under the FI’s are eligible for the deferment subject to meeting the criteria.
It’s great that BNM enabled all Banks to auto-implement the moratorium/deferment to help the public and individuals with their repayments. Despite so, there’s no such thing as a free lunch, let’s look into both opting out or staying in for the deferment;
OPT-OUT FROM DEFERMENT / MORATORIUM
Should you wish to opt-out from the deferment, BNM has suggested to reach out to your respective FI’s and inform them of your choice to do so.
Your repayment period remains the same, without any extension or increment in fees; you’ll continue to enjoy your same lower monthly payments as usual.
This is definitely a huge plus point for those who have already budgeted the next 6 months and is still able to manage their finances during these uncertain times.
OPT-IN FOR DEFERMENT / MORATORIUM
The interesting part may be to opt-in.
You may need to think about how this affects you and the likelihood of your income if it will be affected by the Movement Control Order (MCO). If you’ve made it in life, but you are collecting income from many of your rental properties, or if you’re heavily invested into Commercial real estate, the future for these investment vehicles may look uninteresting if your tenants were to close their business due to the pandemic, because it’s not just one tenant/business, it’s a global phenomenon.
The reason why it may be interesting to go with the automatic opt-in is that most banks have decided to not implement a compounding interest that derived from the deferment. Meaning to say, there will also be no late charges or penalties for this period, and it will not affect your CCRIS credit score with BNM.
Here’s the full bank list who are not charging additional fees/compounding interest on your principal during the deferment period (April 1, 2020 to Sept 30, 2020):
- Public Bank
- Ambank & Ambank Islamic
- Affin Bank & Affin Islamic
- Standard Chartered Bank & Standard Chartered Saadiq
- Alliance Bank
- Hong Leong Bank & Hong Leong Islamic
What would my housing loan/financing monthly payment look like after the 6 months deferment period?
BNM’s illustration of a conventional housing loan is based on these assumptions:
- No extension of tenure after the deferment period
- Loan amount – RM300,000
- Interest rate – 4.6% p.a. (interest not compounded during deferment period)
- Original tenure – 35 years, and borrower has repaid for 5 years
- Principal and interest payments suspended during the deferment period
- Outstanding principal before deferment period – RM280,585
- Outstanding amount post-deferment to be repaid within 29.5 years = RM287,038
Monthly instalment before deferment RM1,438
Monthly instalment after deferment RM1,483 (RM45 increase)
By now, you would have seen a message via SMS or an email to you regarding the automatic opt-in. If you don’t it’s advisable to reach out to your FI’s to seek clarity.
With regards to Mortgage, loans/financing under progressive release (for example; properties under construction) is eligible for the automatic moratorium. Yes, it’s extended to loans/financing under progressive release, where monthly progressive interest will be accumulated during the moratorium period. However, progressive interest/profit due on 31st March 2020 must be settled and will not be accumulated.
If you have more questions in details on how the deferment/moratorium works for other Financial vehicles, you may visit your respective bank sites (linked above) or to BNM’s website here or check out their FAQ (Updated 30 March 2020)
We wish all Malaysians to #staysafe, #stayhome and save money during the MCO lockdown. We hope that the situation clears up soon so everyone can go back to their normal lives. We thank you for all those who followed the MCO procedures set.
Should you be considering a home purchase soon, you may read our other articles below and visit bumbung.co for the best selection of homes in the secondary / sub-sale market. Our aim is to provide the best experience for our buyers and sellers while having the most complete set of properties for your choosing.