To take or No Loan Moratorium due to Covid 19

Due to Covid 19, Malaysian government decided to give loan moratorium for 6 months starting April till September 2020.

The moratorium applied to all banks under Bank Negara Malaysia and for individuals and SME who have housing loan, car loans or business loans. The moratorium will accrue all profit/interest from the loan.

At same time all commercial banks decided not to compound the interest accrued during this 6 months.

The moratorium is to ease financial burden to all affected Malaysians.

Let say we decided to take the moratorium. I would like to analyze for housing loan only.

So what we shall do the additional fund from the 6 months moratorium?
1) Use it if you really need it
2) Save it for emergency fund
3) Use it, to reduce your loan principal

Use The Saving from 6 Months Moratorium to Reduce Your Loan Principal

I would like to simulate what is the best way to reduce your principal. Options available as follows:
1) Use the accumulated fund to pay the principal by the end of moratorium
2) Use the monthly installment to reduce principal on monthly basis

Assumptions:

Loan Amount: RM100,000
Tenure: 30 years
Interest: 5% per annum
Monthly Installment: RM536.82

If no moratorium, the principal should be RM99,272 based on the amortization table.

housing loan amoritization for RM100k loan
housing loan amoritization for RM100k loan

1) Use the Accumulated Fund to Pay Principal by The End of Moratorium

NoMonthPrincipal (RM)Profit / Interest (RM)
1April 2020100,000 416.67
2May 2020100,000 416.67
3June 2020100,000 416.67
4July 2020100,000 416.67
5August 2020100,000 416.67
6September 2020100,000 416.67

After 6 months:-
The accrued profit / interest: RM2,500
The accumulated fund saved from the monthly payment is: RM3,220.92

2) Use the Monthly Installment to Pay Principal On Monthly Basis

NoMonthPrincipal (RM)Profit / Interest (RM)
1April 2020 100,000.00 416.67
2May 2020 99,463.18 414.43
3June 2020 98,926.36 412.19
4July 2020 98,389.54 409.96
5August 2020 97,852.72 407.72
6September 2020 97,315.90 405.48

After 6 months:-
The accrued profit / interest: RM2,466.45
The accumulated fund saved from the monthly payment is: 0

Which Option Is Better?

PrincipalAmount after 6 Months (RM)Comparison vs Do Nothing
Do nothing - principal amount based on normal amortization99,272100.00%
Use the accumulated fund to pay the principal by the end of moratorium 99,279100.01%
Use the monthly installment to reduce principal on monthly basis 99,246 99.97%

There is not much difference in term of principal reduction.

Option (2) Use the monthly installment to pay principal on Monthly Basis is marginally better where it can reduce principal by 0.03%

How It Is Calculated?

Use the accumulated fund to pay the principal by the end of moratorium:

RM99,279 = RM100,000 (principal) + RM2,500 (accumulated interest) – RM3,220.92 (accumulated fund during 6 months moratorium)

Use the monthly installment to reduce principal on monthly basis:

RM99,246  = RM97,315.90 (principal on month 6) – RM536.82 (assuming reduce principal before starts interest charging from month 6 installment) + RM2,466.45 (accumulated interest)

List of Malaysian Banks Giving Loan Moratorium Due to Covid 19

Due to Covid 19, lots of Malaysian and businesses are facing financial hardships. Fortunately we have our banking sector who is pro active in giving loan moratorium.

Loan moratorium is delay in paying your loan installments. In Malaysia, banks are giving 6 months loan moratorium.

List of Malaysian Banks That Give Loan Moratorium

list of malaysian banks offers loan moratorium due to covid 19

Where To Apply Loan Moratorium

Below are the links that I found where you can apply online for loan moratorium.

CIMB Bank

Maybank