Should I take the Moratorium?
The figure of Covid-19 Daily infection during this period is still high as of 1 July 2021 – 6988 cases. Range around 5k to 6k daily cases, even though Malaysia is in full lockdown or also know as FMCO (Full Movement Control Order). With the recent announcement of the Prime Minister of 6 month Bank Moratorium, some friends ask me, should I take the Moratorium?
Quick summary:
1. No financial difficulties – don’t take moratorium, loan tenure get extended 18-24 months
2. Got financial difficulties – for survival purposes, take the moratorium
3. Opportunistic – those who can use the moratorium cash flow deferment & redirect to investment that can generate more than 3% return – take the moratorium.
4. If you planning to get a loan within 3 to 12 months’ time, advise not to take it.
Pro:
- Relief of financial burden.
- Get more cash flow.
- Leverage on Longer Repayment Tenure
- Can invest in a higher-return investment.
Cons:
- Will make the repayment tenure longer.
- Will make getting a new loan harder.
Actually, for me, I think it depends on your financial situation and your forecast of your financial condition for the next 6 to 12 months. The coming 6 to 12 months is quite hard to predict, with the uncertainty of the Covid19 variant and infection rate. This had hit the economy hard, locally and internationally. The answer lies in when can it end or at least we can get back 50 to 60% of our income-generating activities soonest. If we can make some income to cover our basic costs, such as our living expenses, loan, credit card debt then it will remove a great burden from us.
The term and conditions for July 2021 Loan Moratorium are designed for all groups from B40, M40 & T40, microenterprise, and all SMEs. No Term & Condition, you just need to apply. As per the info shown on the Bank Negara website. https://www.bnm.gov.my/ra To opt-in, contact your bank from 7 July 2021 onwards. You can get the link to the Bank Moratorium website here.
I had heard from different experts and investor friends regarding this topic, whether you should take the Moratorium. Some said yes and some said no due to various factors. From the investor’s point of view, their reason is the interest is low now, it is a good time to get the cash flow to invest in a higher return investment vehicle. As long you get a higher return you are ok. You should go for maximum leverage at this time because based on Market Cycle Theory, now is consider the Winter season. It’s a good time, to invest. At the moment, most new development projects are giving a lot of incentives and promotions during this time. If you want to invest in a property with low initial capital, can always talk to our friendly Property Consultant. Subsale & Auction prices are also very attractive now.
For own use property, if take the moratorium will prolong the repayment tenure to another 18 to 24 months. This means you are paying more interest to own the property. If you rented out, the interest is subsidized by the tenant, if you use it yourself this interest is paid by your own self.
If you are facing financial distress, lose your job, or unable to run your businesses, then for survival’s sake, you have no choice to take the moratorium to lessen your financial & emotional burden. Fight the Battle in another day, survival first.
I also consulted my banker on whether taking Moratorium will affect their ability to get a loan. They told me that, the buyer needs to declare whether they taking a moratorium. If yes, their loan will be rejected. Based on their experience after the 1st Moratorium, if the buyer can prove they already start paying back the loan at least 3 months, then they can proceed with the loan application. If you planning to buy a property in 3 to 12 months, then is not advisable to take the Moratorium. If not then you can consider taking the moratorium.
