6-Month Loan Moratorium : Why You Should TAKE It!

6-Month Loan Moratorium : What's The Financial Impact?

Ever since BNM announced a 6-month loan moratorium, people are wondering about the financial impact.

Is it really good for them? Should they take it, or opt-out?

We had earlier shared our views, but today, we will show you the REAL NUMBERS, so you can see for yourself what the real financial impact will be!

6-Month Loan Moratorium : What's The Financial Impact?

I would like to personally thank Choy Wai Mun, Tan Lay Beng, and Dax Chew from myConsult for their help in checking these numbers! 🙂

 

6-Month Loan Moratorium / Deferment : A Quick Primer

On 24 March 2020, Bank Negara Malaysia announced an automatic loan moratorium for six (6) months.

This loan moratorium is a deferment, not a waiver. The interest or profit on your loans will continue to accrue during the six-month loan moratorium.

The banks will offer options to restructure your loans to allow you to repay the accrued interest or profits after the loan deferment ends.

Here is a table summarising the key details :

Property
(Conventional)
Property
(Shariah)
Hire Purchase
Interest / Profit Continues Continues No Change
Compounding Of
Interest / Profit
Yes No No
Payment Of
Principal
No No No
Loan Tenure Postponed By 6 Months
At End Of
Moratorium
Existing Loan
+ 6 Months
Compounded Interest
Existing Loan
+ 6 Months Profit
Existing Loan
(No Change)

 

6-Month Loan Moratorium : The Debate

This has kicked off a lot of debate on whether it’s worth taking the 6-month loan moratorium. Let’s take a look at this example that’s being shared a fair bit :

Chee Kong Chan Loan Calculations

According to the creator, if you take the 6-month loan moratorium for a new RM 500,000 loan, you will end up paying a whopping RM 39,440.33 more at the end.

That’s 7.9% of the loan principal, and it is clear that you would have to be BONKERS to take up such a bad deal.

But the calculations are based on the assumption that the bank will maintain the same instalment, and extend the loan tenure by 16 months.

That is quite unlikely…

 

6-Month Loan Moratorium : The Restructuring Options

Dax reached out to Maybank, who informed him that there are three options at the end of the 6-month loan moratorium :

At least when it comes to Maybank loans, they are not going to let you extend the loan by 16 months.

Let’s take a look at the financial impact of all three options :

Option 1 Option 2 Option 3
Original Loan Principal RM 500,000 RM 500,000 RM 500,000
Interest Rate 4.25% 4.25% 4.25%
New Loan Principal RM 495,960.86 * RM 510,719.06 RM 510,719.06
New Loan Tenure 360 Months 360 Months 366 Months
New Monthly Instalment RM 2,439.83 ** RM 2,512.43 RM 2,492.08
Total Interest RM 382,377.69 RM 393,756.02 RM 401,382.22
NETT Cost / Profit + RM 7,153.25 – RM 18,983.28 – RM 26,609.48

* If you are wondering why the loan principal for Option 1 is reduced, that’s because when you pay the 6-month instalments, it includes 6 months of principal that were deferred. That essentially becomes prepayment that reduces your loan principal in the month after the moratorium (see calculations here).

** We are assuming that the bank will maintain the tenure, therefore reducing the instalment. If the bank allows you to maintain the original, higher monthly instalment, it will shorten your tenure by about 6 months, and reduce your interest by an additional ~RM 7,082.

Now, repaying all 6-months instalment on Month 7 appears to be the best option. It is surely the safest option.

But consider this – what if you use the 6-month instalment of RM 14,758.20 as seed money to invest over the next 30 years?

Option 1
(360 Months)
Option 2
(360 Months)
Option 3
(366 Months)
NETT Cost / Profit + RM 7,153.25 – RM 18,983.28 – RM 26,609.48
Seed Money None RM 14,758.20 RM 14,758.20
EPF (5% p.a.) + RM 32,194.38 + RM 26,233.85
ASM (5.5% p.a.) + RM 42,815.03 + RM 37,318.48
ASB (8.5% p.a.) + RM 153,576.96 + RM 154,054.10

Historical average : FD (3.77% pa), EPF (6.2% pa) ASM (6.65% pa), ASB (9.9% pa)
In our examples, we opted to use significantly more conservative numbers, as a worst case scenario.

As the table shows, it might make more sense to use the money to invest for more gains. Even putting the money into EPF – a safe choice – will double your seed money after 30 years!

 

Conclusion : Take 6-Month Loan Moratorium!

The interest paid on the accrued interest is actually CHEAP, and gives you a lot of opportunity to make extra money. You could, for example :

  • avoid reducing your EPF contribution during the COVID-19 crisis.
  • increase your EPF contribution, which has historically given returns in excess of 5%.
  • pay off credit card debt, which cost 15%-18% per annum!
  • pay off personal loans, which generally cost in excess of 5% per annum!
  • invest in stocks or unit trusts when the economy improves, which will give you higher returns.

If you are the conservative type, you can pay the instalment directly into your loan (Option 1) and save some money, without hassle.

But if you want to make some money, you can use the 6-month instalment as seed money and invest in any investment that pays more than your loan interest rate. You will enjoy pretty nice returns over the next 30 years.

There is also the possibility that you may come into cash crunch during these uncertain times. This is why Bank Negara implemented such a measure – to give you some breathing room.

We highly recommend you take the loan moratorium, whether you plan to build up a comfortable cash reserve, or to invest for better returns.

 

6-Month Loan Moratorium : Details + Calculations

For those who want to check our numbers and/or learn how to calculate your own loans, please head over to these individual pages :

Next Page > What If You Repay Instalments On Month 7?

 

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