6 Months Moratorium returns. Should I go for it? This was yesterday’s Pemulih announcement by Prime Minister Muhyiddin Yassin. (click to read in full) Now that we know moratorium is making a return, the question of should we take it up or not returns as well.
My good friend Jessica Jong who happens to also be an expert with regards to home mortgages posted this very simple explanation about moratorium. She explained what it may do to your home loan if you opt for it just because you was offered it by your bank.
Please take note that every situation in taking up the moratorium is different and the below sharing by Jessica is just an example of one particular scenario and does not necessarily apply to everyone and every loan scenario. A different loan repayment period, for example at the start of the loan or towards the end of the loan would provide a totally different calculation too. Please do proceed to check with your bank for your particular case.
Do note that if you really need the money for some financial distress, you would still have to opt for the moratorium yeah.
— start of Jessica Jong’s sharing —
SHOULD I OPT-IN FOR MORATORIUM?=========================
After the announcement on 6-month loan moratorium by our PM yesterday, I received at least 10 calls from my friends asking me whether or not to apply for mortgage loan moratorium. Here’s a true story that I shared with my friends, and I thought it’s good for me to share with my FB friends as well.
I met with Mr.X last month. He told me that his mortgage loan seems to have problems because the loan outstanding balance has significantly increased more than his actual loan amount. He felt cheated by the bank when he thought bank will not charge interest during moratorium period
After I gathered his loan documents, here’s what I found:
Mr.X took an Islamic Mortgage Loan from RHB. Loan Amount – RM429,080.00 for 35 years He started servicing his loan on 5 Nov 2019. He opted in for 6-months moratorium on 1 Apr – 30 Sep 2020. On 1 May 2021, his Loan Payoff Amount – RM435,812.90. The remaining instalment to be paid – 44 years 11 months
Mr.X loan tenure has been extended to another 9 years ++ as a result of taking the 6-months moratorium I told Mr.X that bank will continue to charge daily interest/ profit on the loan. This means, accumulated repayment amount will be added to the outstanding loan amount.
For Islamic loan, profit will continue to accrue on the outstanding principal amount. Such profit will not be compounded in line with Shariah principles. Actually Mr.X did not face any financial difficulties when he opted in the 6-months moratorium in year 2020. He was influenced by his friends to took the loan moratorium just to conserve cash.
He thought that bank will not charge interest during the moratorium period and at most his loan will only defer by 6 months. After the moratorium period ended, only he realized that his loan tenure is extended to another 9 years ++ What a costly mistake!
My advise to my friends and those that are reading this post:
Don’t go for moratorium unless you really face a cash crunch. Why shell out higher interest outgo later when you can service your obligations today?
Nevertheless, if you face some serious cash flow issues during this period and have no emergency funds, this deferment is to alleviate this concern.
Due to MCO, all my mortgage talks are conducted via online Zoom meetings. If you are keen to find out how my clients & I paid off our mortgages in 3 years, you may register by clicking here. See you soon.
— end of Jessica Jong’s sharing —
Reminder – spending tomorrow’s money today is never a good option
Moratorium is to give breathing space. It is not to give us money to spend on things we like. Not paying for 2 mortgages every month may make someone RM3,000 “richer” but this amount will still have to be paid, plus the interest too. It is a well known fact that many asked for automatic moratorium because they WANTED the money and not because the NEEDED the money. This was why Bank Negara Malaysia (BNM) does not agree to it. I am on BNM’s side.
However, as usual when people pressure becomes too much, the politics take over and we have the blanket moratorium again. Anyway, what has been announced has been announced. On my part, I can only write to provide the necessary view. The decision is definitely up to the person to take. It’s their life, not mine. Happy reading.
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