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

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(Update 6/5/2020 7.30pm: Finance Minister Tengku Dato’ Sri Zafrul Abdul Aziz has announced that hire purchase agreements for both conventional and Shariah-compliant variants will not accrue interest during the moratorium interest. We have updated the article below to reflect this development.)

(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

proton persona

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.

(Updated 30/4/2020, 8pm) 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.

(Updated 30/4/2020, 8pm) 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.

(Updated 6/5/2020, 7.30pm) The stunning announcement from the Finance Minister today effectively reverses the changes announced on 30 April. Interest will no longer accrue for hire purchase agreements for both conventional and Shariah variants, with no further changes to their agreements with the exception of an additional six-month extension to the tenure. With that, we can safely and easily recommend taking up this deferment again, with the following explanation from above:

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.

Personal Loans/Financing

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. (Updated 30/4/2020, 8pm) Therefore, there will be no additional interest charged during the 6-month deferment period.

(Updated 30/4/2020, 8pm) 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

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.

What’s the best repayment option after the deferment programme?

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With six months’ worth of interest to pay, it’s how you pay it that will determine how much more you will end up paying. We found that in general, banks will offer three options of repaying this amount:

  1. Pay the accrued interest in one lump sum in October 2020 in addition to your usual monthly repayment. Loan tenure and repayment amount remains unchanged.
  2. Pay the same monthly repayment amount from October 2020 onwards, but the loan tenure will be extended to accommodate the additional interest payment.
  3. Pay a higher monthly repayment from October 2020 onwards to accommodate the additional interest payment, but the loan tenure will not be changed.

The banks may have other options, but these three are the most common ones offered. You should check with your bank on your available options before opting in for the deferment just in case. Let’s break down how each of the three options above will affect you and your wallet in the long term.

In the explanations below we will continue to use the example of a RM500,000 outstanding conventional home loan at 4% interest p.a.

Option 1: Pay the accrued interest in one lump sum

This is the option where you pay the least additional interest – but might be the one that’s most difficult to do.  By deferring the payment for six months, you’ll free up RM2,390.52 each month to use for buying groceries and other essentials if the extra cash is needed. But remember, this isn’t free money – this is the amount you’d have to spend for your home loan.

However, you will accrue RM10,000.02 in additional interest during the deferment period. For those who will need the deferment to free up cash flow during these six months, Option 1 will definitely be a stretch – how to raise RM10,000.02 when there isn’t even enough money to pay for bills?

However, for those who have the means to pay their monthly repayments but are curious if this deferment is an opportunity to make some money, we can safely say it is possible – but it’s highly dependent on what saving/investment instrument you use, and your investment horizon. And in this economic climate, you could potentially lose even more money by investing the repayment money. We will explore this further in our Recommendations section below.

Option 2 (A) & (B): Pay the same monthly repayment, and extend loan tenure

For option 2 (A), you will pay the amount as you did before, but the loan tenure will have to be extended to accommodate the six months of additional interest accrued. In the RM500,000 outstanding home loan example, you’ll be extending the tenure by a whopping 21 months (and not just by six months, because the interest accrued during the 6 months will be added to the principal and accrue interest from the resumption of payment). The total additional interest charge for this option is RM33,866.34. Do not opt for this.

Some banks will also offer Option 2 (B), which is extending your loan tenure by 6 months (i.e. the same duration as the deferment period), but you will be required to bump up your monthly repayment. In the RM500,000 home loan example, you will need to pay a new monthly amount of RM2,438.33 (RM47.81 more than before). The total additional interest charge for this option is RM17,163.94. That’s lower than Option 2 (A), but here’s a better option:

Option 3: Pay a higher monthly repayment, but keep the loan tenure unchanged

This option is the best repayment option to take. Because you are opting to pay more each month to offset the outstanding balance (both principal + original interest and deferred period interest), the total interest charge will also be lower. The new monthly repayment amount will be RM2,459.88 until the end of the loan – RM69.36 more than your old repayment amount. The total additional interest charge for this option is RM10,139.68 – just RM139.66 more than Option 1 where you fork out a huge lump sum.

To summarise, here’s a table to show the possible repayment options after the deferment period, and how much additional interest will be charged as a result of the deferment:

Option 1 Option 2 (A) Option 2 (B) Option 3
Monthly repayment RM2,390.52 RM2,390.52 RM2,438.33 RM2,459.88
Repayment difference 0 0 + RM47.81 + RM69.36
Loan tenure + 6 months + 21 months + 6 months Unchanged
Total interest charged from deferment RM10,000.02 RM33,866.34 RM17163.94 RM10139.68

*Update 6 Apr: Fixed error on Option 1 (loan tenure should be +6 months)

As you can see, how you repay your loans after the deferment period makes a huge difference.

What about Islamic home financing?

Now, if you’re on an Islamic home financing plan, you can ignore all of the calculations above. Since Syariah principles forbid compounding profit (i.e. no profit from accrued profit), regardless of whichever repayment option you choose, the financial commitments will be the same: you just need to repay the accrued profit from the 6-month deferment (i.e. RM10,000.02 in the example used in this article).

It’s best to check with your bank on how the repayment will be implemented.

Relief For Those Who Need It

As you can see from the calculations above, the total additional interest charged is certainly a huge number, but when spread over a few decades this number becomes noticeably more manageable. This is something important to keep in mind.

To put it in context, someone servicing a 30-year home loan with RM500,000 outstanding may lose their jobs during this period. This deferment frees up RM2,390.52 each month from their monthly commitment, which can mean having food on the table, buying schoolbooks for the children, not defaulting on a loan, and overall, alleviating immense financial stress. In exchange, when things are hopefully better, he or she pays RM47.81 or RM69.36 more to their home loan repayments each month for the next 30 years.

For those who don’t have a choice, this trade-off is worth every Ringgit.

Should you take the deferment? Our recommendation

Take the deferment if…

  • you have an existing car loan or personal loan (and their Islamic financing equivalents). This is a no-brainer – you suffer no implications, and your loan resumes from October 2020. You should already receive an SMS from your bank informing you of the deferment to your existing loan, and how to opt out. With BNM and ABM’s u-turn on the original moratorium agreement, this is no longer a straightforward recommendation.
  • you face some serious cash flow issues during this period and have no emergency funds – this deferment is to alleviate this exact concern. If your employer has imposed a salary cut – or worse, a round of layoffs – this deferment will ease the financial stress. Don’t forget to also check what financial aids you are eligible for. This is a very difficult period, but we can pull through.
  • you foresee a potential cash flow issue – with no job security across all industries, you’ll never know what might happen. Even if you can afford to service your loans, at the very least this deferment helps you build a buffer for the future (see below). Note that you can opt in for the deferment at any time during these six months, so you don’t have to make a decision now.
  • your risk appetite is high enough, or if your investment horizon is long. You can make use of the monthly repayment to make more money (provided you have enough money set aside for other commitments). Here’s how much you stand to earn if you put this amount in a fixed deposit or an investment product (assuming you invested ALL the 6-month repayment, selected repayment option 3, made no withdrawals, and the projected returns are guaranteed):
Return of investment 4% 6% 8%
Total invested

RM14,343.12

Total interest to repay (Option 3)

RM10139.68

Total earned after 30 years RM33,110.19 RM71,587.09 RM141,007.53
Breakeven point 13 years, 7 months 9 years, 2 months 6 years, 11 months
Net earnings after 30 years RM22,970.51 RM61,447.41 RM130,867.85
  • Finally, if you are on an Islamic home financing plan, take the deferment. Syariah principles forbid any form of compound profit, which makes a huge difference in terms of how much profit you pay to the bank. With zero compound profit on both the principal and the accrued profit during the deferment, you’ll enjoy the best of both worlds (6 months payment deferment and low profit charge).

DON’T take the deferment if…

You should understand that this deferment programme is primarily aimed at those who may face immense financial distress due to the economic effects of the Covid-19 pandemic. If you are able to service your loan as usual and are financially secure in this economic climate, you can consider opting out of the deferment programme.

That said, it makes sense to still take the deferment and save the money in a fixed deposit with 4% p.a. returns for the next 30 years. If you chose repayment Option 3 in the example above, you will earn a nett amount of RM22,970.51 (after deducing the interest charges in the same timeframe). It may not be much, but hey, this is RM22,970.51 more in your pocket than if you didn’t take the deferment whatsoever.

*************

bank negara malaysia

BNM’s deferment programme is a beneficial step for all Malaysians currently servicing any form of loans/financing plans, and an important one during this challenging period. We recommend those eligible to take the deferment, as those who will need it will have a brief respite, while those who can afford to service their loans can actually earn some money by saving or investing the deferred instalments.

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Tee
1 month ago

I took a personal loan from my credit card line of credit. Isn’t this eligible for this deferment program? My Bank is saying no as it’s credit card related.

Fauzi
1 month ago

can you further explain option 2A? “For option 2 (A), you will pay the amount as you did before, but the loan tenure will have to be extended to accommodate the six months of additional interest accrued. In the RM500,000 outstanding home loan example, you’ll be extending the tenure by a whopping 21 months (and not just by six months, because the interest accrued during the 6 months will be added to the principal and accrue interest from the resumption of payment). The total additional interest charge for this option is RM33,866.34. Do not opt for this.” IF WE PAY… Read more »

aliff norisahak
1 month ago

Hello ringgitplus. Although i cant vouch for the accuracy, but i believe you are the first to publish this information in details. Thank you

Aaron
1 month ago

A lot of things are highly inaccurate. For example, some banks like RHB are offering the moratorium to extend mortgage loans for 6 months tenor while monthly installments remaining the same thereafter. Please refer to RHB website: https://www.rhbgroup.com/covid_retail/index.html How it works is that in the 7th month onwards, your monthly installments will be used to settle the outstanding interest first. So this option is extremely viable as well. 20. What would happen to my loan/financing after the moratorium period? Will I need to pay more interest/profit after the moratorium period is over? Is there an increase in monthly payments, or… Read more »

Tan Wei Wern
1 month ago

Thanks for posting these up. However could you furnish us with the formulations on calculating the total interest charged from deferment of option 2(B) and repayment difference of RM47.81 in option 2(B)

StaySafe
1 month ago

For option of Credit Card conversion to Term Loan, is it advisable to apply?

mohamed raisul
1 month ago

A big thank you RinggitPlus! You’re the first to discuss on the aftermath of taking the moratorium. This puts things to perspective although the banks are yet to come up with their explanation on how things will work out.

Ferdouz
1 month ago

I think you calculate not accurate. on opt 3. The additional rm 10139 already deduct with the loan payment 6 month we need to pay. Again we deduct to the interest .hope you can clarify again

LOGESH JAGANTHERAN
1 month ago

Hope to see more useful information from your end. Good Job, Ringgitplus !!

SL
1 month ago

If i were to use the accumulated monthly installments to reduce the principal after 6th mths moratorium, will it be better?

Anonymous
1 month ago

What about mortgage – progressive interest? I understand that theres a difference treatment between progressive interest and fully disbursed loan.

KS
1 month ago

Hi RinggitPlus, thanks for the explanation. The information really helps me to understand better about the moratorium =)

Just some comments/questions:
For Option 1, if monthly repayment amount remains unchanged, isn’t the loan tenure be extended for 6 months? On the other hand, if loan tenure remains unchanged, isn’t the monthly repayment becomes RM2,411.64 (+RM21.12) with net additional interest of just RM3,113.49?

Not sure if my calculation/understanding is correct. Please correct me if i’m wrong. Thanks very much.

julia
1 month ago

if i opt for deferment and i put the money in ASB for more than 10 years and opt for extended 6 months repayment period would it be better.?

deryck
1 month ago

Can you explain what is your remaining tenure assumption in your calculation with a repayment increase of rm69.36? I’m wonderjng how is the difference in interest between Op 1 and Op 3 only rm139.

James Phua
1 month ago

to take or not to take? There are many scenarios to cover but at least you covered 1 scenario. That’s already better than the other articles out there. Good job.

Vinz Chia
1 month ago

Hi, thanks for sharing this useful detail calculation on loan deferment with us. One things I notice is that this article only talk about the interest incur throughout the 6 months loan deferment period but never include the 6 months principal into the calculation. Is that right? For option A, shouldn’t we fork out additional 6 months principal instead of just RM10,000.02? Same to the rest of the option. Won’t the principal affect the total interest you need to pay at the end of the day? Another question from me is: From what I notice throughout the net, there is… Read more »

Mak Cik Kiah
1 month ago

For auto loan, i don’t think banks are so kind hearted to give free “payment holiday”. Bank will never lose even a single cent by allowing customer to borrow for free 6 months…
Please check with the banks before posting this kind of info…

Farid Omar
1 month ago

Hi Mr. Phang

Thanks for your valueable articles. Im currently have islamic housing loan and you suggest to option in, rite? So in october i just need to pay as normal and my loan tenure will just extend 6 months only rite? My understanding is correct?

Lim
1 month ago

Hi, first of all, thanks for the details. After I read through the details, I realised your option seems to be missing out on how RHB would calculate the repayment. This is what I quote from their website’s FAQ, “The monthly instalment/payments will first be allocated to pay off all outstanding interest/profit. Payment will only be subsequently allocated to reduce the principal balance once all outstanding interest/profit has been paid.” Link for your reference : https://www.rhbgroup.com/covid_retail/index.html If so, even if we pay the same installment after 6 months, it would not be an additional 21 months of tenure. I am… Read more »

Rhen
1 month ago

Question 1:If we opt for Option 3, must we speak to our bank officially n inform them to recalculate our higher installments without affecting the tenure. Or do we just increase our instalments ourselves (if we know how to calculate ourselves)

Question 2: what if we opt for the moratorium, n save the instalments over the next 6months, pay off the accrued interest after 6months n instead feed the whole saved amount as a lump sum contribution to reduce the principal amount? Does that work out better?

JOE
1 month ago

I don’t think option 3 is accurate. If the tenure is kept at the same tenure and you choose to top up your monthly to by RM69.36 monthly for the remaining tenure, how can this be RM139 more than option 1.

Kiki
1 month ago

How can your Total Invested be RM14,343.12 when you only have RM10,000.02 by opting for loan deferment. Good read tho!

Jon Chua
1 month ago

What about full flexi mortgage loan? My facility is a 2 account flexi mortgage. I usually bank in quite a bit more than my minimum monthly payment sum into my current account. If I continue doing that during the moratorium, and assuming I take up the moratorium, would I not be saving more since effectively the balance in the current account will not be debited towards loan payment, and the effect is that the interest charged will be on a lower outstanding sum (since the principal and interest are not debited for 6 months)?

Then
1 month ago

Thanks a lot for the explanation, iit’s very clear.i just want to confirm it’s worth to take the deferment if we choose the option 3, ,
Another Q is do all the banks give all the 3, options or they will fix the option ?
How about flexi loan?

Concerned individual
1 month ago

Thank you for the comprehensive explanation and illustrations. But i find your final statement/conclusion to be intentionally. You left out the fact that option 3 required extra payment of 24, 963.60 which your assumption of 4% FD over the next 30 years does not generate sufficient to cover.

Marwin Lee
1 month ago

If the curent invest return is less than the interest charge on my loan, is it better to use my car loan installment to pay for my housing loan?

Zulkifli Ahmad
1 month ago

From my understanding, if you don’t do anything, the bank will automatically waived
the monthly payment but your 6 months interest will accumulate and loan period will be extended by 6 months. This will be as per option 2 as per yr example. However you recommended option 3 which you pay a bit extra (after the 6 months) but no increase in loan period. So if i opt for option 3, then i have to contact the bank, correct ? If so plse reconfirm. Also, plse advise me maybank email address to query on this. Tq

Vijai Ananth
1 month ago

Dear Pang, I think adding the unpaid interest accrued during moratorium to the outstanding balance after moratorium is your assumption rather than a confirmed act by bank. I believe banks will not do that because that defeats the very purpose of waiving compound interest during moratorium. Interest accrued after moratorium period shall be compounded, yes, BUT interest accrued during moratorium period SHALL NOT be added to the outstanding balance after moratorium period. As per your example in the article ie: RM 10,000.02 is the unpaid interest & I believe this will be treated separately throughout the tenure, not by creating… Read more »

AK
1 month ago

Hi RinggitPlus,

Thanks for the explanation. Can you explain more if my housing loan is a flexi loan? By right, the repayment amount monthly should follow outstanding balance in the account. So if I opt for the moratorium, but still repay the same amount each month into the account, technically my outstanding is reduced more (hence even interest calculated should be less) as my full repayment goes into reducing outstanding rather than used up for interest. Is that how it works?

BJ
1 month ago

Where do you find fixed deposit that can give you 4%?

Mellisa
1 month ago

Thank you for sharing such insightful article. I am curious as to how to attain Total Earned After 30 years of RM33,110.19 given the return of investment of 4% p.a.? What are the assumptions used for this calculation?

Tan Wei Wern
1 month ago

Pang, any update on the downloadable file calculation or live calculator from Hann? Thanks

Ethan
1 month ago

I saw my home loan next payment date change to Nov 2020.
But if I don’t want to take the 6 months deferment program, which mean i still pay as normal in this coming April 2020.

What is the benefit that I gain? Or not gain at all?

Thanks for your advise.

Hasnah Zainal
1 month ago

How to invest when the investment section of the bank is closed during the MCO?

Asong
1 month ago

On the 30th April 2020, 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, will the interest will be accrued during this moratorium period? Based in your article on the hire purchase, would like to ask other people opinion regarding the option 1, on the month October 2020, meaning to say we will have to pay lump sum of 6 months loan without being charged of any interest? Kindly correct me if am wrong? Thank you.

Brian
1 month ago

With the u-turn for the treatment of Hire Purchase, can you provide a simulation on the additional charge calculation?

Hasbeen
1 month ago

Love your insights and calculations for us

L
1 month ago

What if I took a housing loan for a property which is still under construction i.e. I am only paying the interest monthly for now? So how will it affect me if I take the deferment?

john
22 days ago

If anybody is interested, I came across this calculator to calculate my monthly repayment after extending the loan moratorium on lowyat forum and thought it was pretty cool (verified the numbers myself): doctorfrugal.com/loanmoratoriumcalculator/

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