Moratorium Malaysia Bank : Why You Should Opt For The 6-Month Deferment For ALL Loans (Updated)

Moratorium Yayasan Ihsan Rakyat and Malaysia Bank

Moratorium Yayasan Ihsan Rakyat Malaysia Bank: Why You Should Opt For The 6-Month Deferment For ALL Loans (Updated)

Moratorium Malaysia Bank - Yayasan Ihsan Rakyat
For many Malaysians, the announcement by Bank Negara Malaysia (BNM) of the 6-month automatic deferment of all loans was met with relief.
Moratorium Malaysia Bank - Yayasan Ihsan Rakyat
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1 Bold Moratorium Yayasan Ihsan Rakyat and Malaysia Bank : (Update 30/4/2020 8pm: To reflect BNM and ABM’s announcement to amend the moratorium for hire purchase and fixed-rate Islamic financing, we have removed our recommendation for both types of loans. We are in the midst of analysing the way banks are calculating interest on deferred instalments, and will publish our analysis and recommendations when they are complete.)

For many Malaysians, the announcement by Bank Negara Malaysia (BNM) of the 6-month automatic deferment of all loans was met with relief. At a time when job security is non-existent in Malaysia and across the globe, the decision to offer no penalties for not paying off a substantial monthly commitment is welcome news indeed.

That said, there remains quite a bit of confusion and misunderstanding on the matter. How exactly will the deferment change the terms of our current loans? Are we still paying interest during the deferment period? How significant is the announcement that banks are waiving compounding interest during the deferment period?

In this article, we will break down all aspects of the BNM deferment, and how it will affect any loans that we may have.

Hire Purchase Agreements

Moratorium Yayasan Ihsan Rakyat and Malaysia Bank : Hire purchase loans work on a flat interest rate, which means the interest rate is agreed upfront, and is charged on a fixed amount (in this case, the value of the loan) throughout the tenure.

During the 6-month deferment period, there will be no additional interest charged. This is because the interest follows a flat rate basis, and since the principal sum does not increase, you will enjoy a true “payment holiday” with no implications from today until the end of September.

Note that this explanation applies only to flat-rate car loans (which is the most popular car loan in the country). For variable rate car loans, the calculations will follow a reducing balance interest charge – please refer to the mortgage loan explanation below.

Moratorium Yayasan Ihsan Rakyat and Malaysia Bank :  Now that Bank Negara Malaysia (BNM) and the Association of Banks in Malaysia (ABM) have announced that interest may now be charged to all hire purchase agreements, those currently servicing these loans should review their car loans before deciding to opt in.

According to the ABM, Malaysians currently servicing hire purchase loans have two options at the end of the moratorium period:

1) Pay the accumulated 6 months’ deferred instalments together with their October 2020 instalment without being charged any additional interest; or

2) Continue the repayment of these instalments post-October 2020 through an extension of 6 months in repayment period after the original maturity date. In this case, interest based on the contractual rate will be charged on the amount of the deferred instalments that remains outstanding until these instalments are fully repaid, which should be by the end of the extended 6-month tenure.

Option 1 is straightforward – if you have the means to service the funds, it makes sense to take the deferment and put the funds away into a safe, high-interest savings account or investment and withdraw them after six months to earn some interest with minimal work.

On the other hand, Option 2 will see the introduction of interest charges during the moratorium period. The amount you pay highly depends on two factors: your monthly instalment amount, and the remaining tenure of your loan.

 
 

Personal Loans/Financing : Moratorium Yayasan Ihsan Rakyat and Malaysia Bank

Moratorium Yayasan Ihsan Rakyat and Malaysia Bank :

Just like hire purchase agreements, personal loans and personal financing follow a flat-rate basis for the interest/profit rates. This means that regardless of your outstanding balance, you will pay a fixed interest or profit rate where the total is set by you and the lender. Therefore, there will be no additional interest charged during the 6-month deferment period.

BNM and ABM’s announcement today covers only hire purchase agreements as well as fixed-rate Islamic financing. There is no mention of additional interest charges for conventional loans, so for now, it is safe to say that conventional personal loans will have no additional interest charged.

For Islamic financing, the additional profit charges will be calculated the same way as hire purchase agreements.

While all banks offering personal loan or financing are covered under the BNM deferment programme, non-bank entities may still be offering their own assistance. Aeon Credit Service, for example, is offering a one-month deferment for all existing personal loans and financing, and like BNM’s initiative, it is an automatic deferment. For other lenders, please check with them if you would like to seek a deferment.

Mortgage Loans/Home Loans

moratorium yayasan ihsan rakyat
As most home loans charge interest on a reducing balance basis, interest is charged each month based on the total outstanding balance from the previous month. With the six-month deferment, BNM and all banks have stated that borrowers do not need to pay anything during this period – BUT interest will still accrue. We checked all banks’ as well as BNM’s FAQ on this, and they all confirm that interest will accrue during this period.
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Home loans or mortgages are where things can get very confusing – this is where the BNM 6-month deferment will affect Malaysians the most. As most home loans charge interest on a reducing balance basis, interest is charged each month based on the total outstanding balance from the previous month. With the six-month deferment, BNM and all banks have stated that borrowers do not need to pay anything during this period – BUT interest will still accrue. We checked all banks’ as well as BNM’s FAQ on this, and they all confirm that interest will accrue during this period. What about the non-compounding interest? As of 31 March 2020, all Malaysian banks as well as the HOUS foreign banks (HSBC, OCBC, UOB, and Standard Chartered) have all announced that they will not be compounding interest for the accumulated interest during the 6-month deferment period. It definitely sounds noble, but how much is this amount exactly?

To illustrate, let’s say you have just taken a conventional home loan with outstanding balance as of 31 March 2020 at RM500,000. Your home loan interest rate is 4% p.a. and monthly repayment is RM2,390.52. The table below shows how much interest that will accrue during the deferment period, both if it compounds and if it does not:

Month Interest charge (non-compounding) Interest charge (compounding)
Apr-20 RM1,666.67 RM1,666.67
May-20 RM1,666.67 RM1,672.22
Jun-20 RM1,666.67 RM1,677.80
Jul-20 RM1,666.67 RM1,683.39
Aug-20 RM1,666.67 RM1,689.00
Sep-20 RM1,666.67 RM1,694.63
Total RM10,000.02 RM10,083.71
Difference RM83.69

As you can see, despite what the banks are saying, the compounding interest charges that they are all waiving isn’t actually a very big sum (from an individual perspective).

But from a macroeconomic scale, this value quickly turns into a very, very big amount for the banks. Data from the National Property Information Centre shows that between 2009 until 2018, there were over 2.3 million residential properties sold. Assuming all of these properties were sold via home loans, the value of the 6-month non-compounding interest could actually come up to hundreds of millions of Ringgit in potential revenue for the banks in Malaysia.

That being said, let’s not forget that banks are still generating revenue from the accrued interest over the six months. Depending on how you repay this accrued interest, you would still end up additionally paying a minimum of six months’ worth of interest into your home loan. Note, also, that all banks are saying that they will not compound interest “during the deferment period” – none of the FAQs say that there will be no interest compounding from October 2020 onwards.

The exception to this is of course Islamic financing plans, where profit cannot be made from profit. This carries a huge implication, because with zero compounding of profit anywhere, you’ll effectively only be paying the accrued interest (i.e. RM10,000.02 from the example above) and nothing more.

Contact Bank Negara Malaysia

03-2174 1717 / 603-2698-8044 / 2698 9044 / 9179 2888

Bank Negara Malaysia, Jalan Dato' Onn, P.O. Box 10922, 50929 Kuala Lumpur

Personal Loan bank and cooperative

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