Site icon The Rojak Pot

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

What If You Extend Loan Tenure By 6 Months?

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!

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 :

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 :

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?

 

Recommended Reading

 

Support Us!

If you like our work, you can help support our work by visiting our sponsors, or even donating to our fund. Any help you can render is greatly appreciated!


Loan Moratorium Financial Impact : Repay Instalments On Month 7

Here is the financial impact of paying the deferred instalments on Month 7, step by step.

We will use the same scenario as the rest – a NEW RM 500,000 loan with an interest rate of 4.25% per annum, and a 30-year tenure.

Step 1 : Calculate The Instalment Deferred

First, you need to know how much money the 6-month loan moratorium is going to put in your pocket :

Month Instalment Deferred
April RM 2,459.70
May RM 2,459.70
June RM 2,459.70
July RM 2,459.70
August RM 2,459.70
September RM 2,459.70
TOTAL RM 14,758.20

Okay, now we know that the loan moratorium will let you keep RM 2,459.70 of your money every month, giving you just over RM 14,750 to use during this COVID-19 crisis.

Step 2 : Calculate The Compounding Interest

During the 6-month loan moratorium, you will NOT be paying the bank a single cent. So the banks will generally charge you compounding interest – interest will be charged on the interest accrued to date.

Month Compounding Interest
April RM 1,770.83
May RM 1,777.10
June RM 1,783.37
July RM 1,789.65
August RM 1,795.92
September RM 1,802.19
TOTAL RM 10,719.06

The bank will charge you about RM 10,720 in accrued, compounded interest at the end of six months.

At the end of the 6-month loan moratorium, the bank will add this EXTRA interest and restructure your loan, and you resume paying your new monthly instalments.

Step 3 : Calculate The CHANGE For The Full Term

To calculate how much it will cost you at the end of your 30-year loan, you need to use one of the many loan amortisation Excel templates or online calculators.

Just fill in the details, with and without the extra interest, and you will get the total interest at the end of the 30-year loan.

For your convenience, here is the table we came up with :

No Moratorium With Moratorium
Loan Principal RM 500,000 RM 500,000
Interest Rate 4.25% 4.25%
Loan Period 360 Months 360 Months
Extra Interest + RM 10,719.06
Extra Payment – RM 14,758.20
New Loan Principal RM 500,000 RM 495,960.86
New Monthly Instalment RM 2,459.70 RM 2,439.83
Total Interest RM 385,491.80 RM 382,377.69
TOTAL RM 885,491.80 RM 878,338.55
DIFFERENCE Baseline – RM 7,153.25

If you opt-out of the loan moratorium, you will end up paying RM 885,491.80 by the end of the loan.

If you take the loan moratorium, you will pay RM 878,338.55 – a reduction of RM 7,153.25.

If we consider the RM 14,758.20 (the deferred 6-months instalment) as seed money, you basically get an annualised return of 1.32% per annum.

Next Page > What If You Spread Instalments Over Loan Tenure?

 

Recommended Reading

 

Support Us!

If you like our work, you can help support our work by visiting our sponsors, or even donating to our fund. Any help you can render is greatly appreciated!


Loan Moratorium Financial Impact : Spread Instalments Over Loan Tenure

Here is the financial impact of spreading the instalments over the loan tenure, step by step.

We will use the same scenario as the rest – a NEW RM 500,000 loan with an interest rate of 4.25% per annum, and a 30-year tenure.

Step 1 : Calculate The Instalment Deferred

First, you need to know how much money the 6-month loan moratorium is going to put in your pocket :

Month Instalment Deferred
April RM 2,459.70
May RM 2,459.70
June RM 2,459.70
July RM 2,459.70
August RM 2,459.70
September RM 2,459.70
TOTAL RM 14,758.20

Okay, now we know that the loan moratorium will let you keep RM 2,459.70 of your money every month, giving you just over RM 14,750 to use during this COVID-19 crisis.

Step 2 : Calculate The Compounding Interest

During the 6-month loan moratorium, you will NOT be paying the bank a single cent. So the banks will generally charge you compounding interest – interest will be charged on the interest accrued to date.

Month Compounding Interest
April RM 1,770.83
May RM 1,777.10
June RM 1,783.37
July RM 1,789.65
August RM 1,795.92
September RM 1,802.19
TOTAL RM 10,719.06

The bank will charge you about RM 10,720 in accrued, compounded interest at the end of six months.

At the end of the 6-month loan moratorium, the bank will add this EXTRA interest and restructure your loan, and you resume paying your new monthly instalments.

Step 3 : Calculate The EXTRA Interest For The Full Term

To calculate how much it will cost you at the end of your 30-year loan, you need to use one of the many loan amortisation Excel templates or online calculators.

Just fill in the details, with and without the extra interest, and you will get the total interest at the end of the 30-year loan.

For your convenience, here is the table we came up with :

No Moratorium With Moratorium
Loan Principal RM 500,000 RM 500,000
Interest Rate 4.25% 4.25%
Loan Period 360 Months 360 Months
Extra Interest RM 10,719.06
New Loan Principal RM 500,000 RM 510,719.06
New Monthly Instalment RM 2,459.70 RM 2,512.43
Total Interest RM 385,491.80 RM 393,756.02
TOTAL RM 885,491.80 RM 904,475.08
DIFFERENCE Baseline + RM 18,983.28

If you opt-out of the loan moratorium, you will end up paying RM 885,491.80 by the end of the loan.

If you take the loan moratorium, you will pay RM 904,475.08 – an additional RM 18,983.28.

Step 4 : Calculate The Nett Cost To You

That sounds like a lot, doesn’t it? But wait a minute – did you forget the money you pocketed in beginning?

If you kept it in your house, under your mattress, you will end up paying interest on it for 30 years at 4.25% per annum.

But if you use 6-month instalment to invest (Seed Money), you can potentially MAKE MONEY from it. Take a look :

Fixed Deposit
(2.5% pa)
EPF (5% pa) ASM (5.5%) ASB (8.5%)
After 360 Months + RM 31,218.74 + RM 65,935.86 + RM 76,556.51 + RM 187,318.44
Seed Money – RM 14,758.20 – RM 14,758.20 – RM 14,758.20 – RM 14,758.20
Gross Profit / Loss + RM 16,460.54 + RM 51,177.66 + RM 61,798.31 + RM 172,560.24
Extra Interest – RM 18,983.28 – RM 18,983.28 – RM 18,983.28 – RM 18,983.28
NETT Profit / Loss – RM 2,522.74
– 0.63% p.a.
+ RM 32,194.38
+ 3.86% p.a.
+ RM 42,815.03
+ 4.54% p.a.
+ RM 153,576.96
+ 8.14% p.a.

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.

Now, putting it into FD will result in a LOSS, so you should only do that if you plan to keep the money in reserve for emergencies, but want to minimise the loss. It will cut down the “cost” from almost RM 19K to just RM 2.5K.

But if you invest into anything more than the bank interest rate (we used 4.25% as an example), then you stand to make really substantial gains after 30 years.

Next Page > What If You Extend Loan Tenure By 6 Months?

 

Recommended Reading

 

Support Us!

If you like our work, you can help support our work by visiting our sponsors, or even donating to our fund. Any help you can render is greatly appreciated!


Loan Moratorium Financial Impact : Extend Loan Tenure By 6 Months

Here is the financial impact of extending the loan tenure by 6 months, step by step.

We will use the same scenario as the rest – a NEW RM 500,000 loan with an interest rate of 4.25% per annum, and a 30-year tenure.

Step 1 : Calculate The Instalment Deferred

First, you need to know how much money the 6-month loan moratorium is going to put in your pocket :

Month Instalment Deferred
April RM 2,459.70
May RM 2,459.70
June RM 2,459.70
July RM 2,459.70
August RM 2,459.70
September RM 2,459.70
TOTAL RM 14,758.20

Okay, now we know that the loan moratorium will let you keep RM 2,459.70 of your money every month, giving you just over RM 14,750 to use during this COVID-19 crisis.

Step 2 : Calculate The Compounding Interest

During the 6-month loan moratorium, you will NOT be paying the bank a single cent. So the banks will generally charge you compounding interest – interest will be charged on the interest accrued to date.

Month Compounding Interest
April RM 1,770.83
May RM 1,777.10
June RM 1,783.37
July RM 1,789.65
August RM 1,795.92
September RM 1,802.19
TOTAL RM 10,719.06

The bank will charge you about RM 10,720 in accrued, compounded interest at the end of six months.

At the end of the 6-month loan moratorium, the bank will add this EXTRA interest and restructure your loan, and you resume paying your new monthly instalments.

Step 3 : Calculate The EXTRA Interest For The Full Term

To calculate how much it will cost you at the end of your loan (now extended by 6 months), you need to use one of the many loan amortisation Excel templates or online calculators.

Just fill in the details, with and without the extra interest, and you will get the total interest at the end of the 30-year loan.

For your convenience, here is the table we came up with :

No Moratorium With Moratorium
Loan Principal RM 500,000 RM 500,000
Interest Rate 4.25% 4.25%
Loan Period 360 Months 366 Months
Extra Interest RM 10,719.06
New Loan Principal RM 500,000 RM 510,719.06
New Monthly Instalment RM 2,459.70 RM 2,492.08
Total Interest RM 385,491.80 RM 401,382.22
TOTAL RM 885,491.80 RM 912,101.28
DIFFERENCE Baseline + RM 26,609.48

If you opt-out of the loan moratorium, you will end up paying RM 885,491.80 by the end of the loan.

If you take the loan moratorium, you will pay RM 912,101.28 – an additional RM 26,609.48.

Step 4 : Calculate The Nett Cost To You

That sounds like a lot, doesn’t it? But wait a minute – did you forget the money you pocketed in beginning?

If you kept it in your house, under your mattress, you will end up paying interest on it for 366 months at 4.25% per annum.

But if you use 6-month instalment to invest (Seed Money) for the full term of 366 months, you can potentially MAKE MONEY from it. Take a look :

Fixed Deposit
(2.5% pa)
EPF (5% pa) ASM (5.5%) ASB (8.5%)
After 366 Months + RM 31,611.02 + RM 67,601.53 + RM 78,686.08 + RM 195,421.78
Seed Money – RM 14,758.20 – RM 14,758.20 – RM 14,758.20 – RM 14,758.20
Gross Profit / Loss + RM 16,852.82 + RM 52,843.33 + RM 63,927.88 + RM 180,663.58
Extra Interest – RM 26,609.48 – RM 26,609.48 – RM 26,609.48 – RM 26,609.48
NETT Profit / Loss – RM 9,756.66
– 3.54% p.a.
+ RM 26,233.85
+ 3.35% p.a.
+ RM 37,318.48
+ 4.14% p.a.
+ RM 154,054.10
+ 8.01% p.a.

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.

Now, putting it into FD will result in a LOSS, so you should only do that if you plan to keep the money in reserve for emergencies, but want to minimise the loss. It will cut down the “cost” from RM 26.6K to just RM 9.8K.

But if you invest into anything more than the bank interest rate (we used 4.25% as an example), then you stand to make really substantial gains after 30.5 years.

Go Back To > What’s The Financial Impact (First Page) | Home

 

Recommended Reading

 

Support Us!

If you like our work, you can help support our work by visiting our sponsors, or even donating to our fund. Any help you can render is greatly appreciated!


Exit mobile version