Banks are looking to assist home loan borrowers during the Coronavirus outbreak

With a sudden decline in the economy due to this outbreak, financial institutions are doing their part in helping the rakyat with their debt.

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As you may already know, the COVID-19 (coronavirus) has been spreading throughout the world like wildfire. People are scared, while face masks and hand sanitisers are high in demand – to the point where a massive shortage of supply is observed not just in Kuala Lumpur, but in other urban areas as well. 

The situation is much dire in Singapore where panic buying is leaving most with empty shelves in the supermarkets. Even cruise ships unaffected by the virus are not allowed to dock, despite stopping in 3 different countries.

When will this stop? Nobody knows. There is no known vaccine as of yet, and the virus can be transmitted easily amongst humans. 

READ: BNM reduces OPR to 2.75% – How will it affect your home loan?

In a recent article, an economist mentioned that Japan, South Korea, Taiwan, Hong Kong, Philippines, Singapore, Malaysia and Thailand’s economy will be badly affected if the outbreak is prolonged for more than 3 months. Logically, when consumers’ spending is low, with restrictions on imported goods, travel restrictions and many more – how can this NOT impact the economy?

We have no choice but to brave the storm. In light of this, some banks are announcing a temporary loan instalment deferment to their loan borrowers, as a way to help them during this difficult time.  According to a banker friend, loan borrowers will need to submit a request letter in order to allow the deferment. This is much better than letting the loan go into default and keeps people from losing their homes.

When there is a high chance of default, it is also not great for banks as the number of non-performing loans (NPL) will increase and thus, the loan loss provision will be higher – which can affect a bank’s bottom line. Therefore, a temporary deferment would have only a limited impact on banks.  However, not all banks are offering this yet, but it is likely that they will soon follow suit.

What will happen if your loan instalment is deferred:

  1. Interest will still be calculated and charged even though you are not paying the instalment for the time being.
  2. Either your tenure years will be lengthened or the accumulated interest will be spread out in your balance loan instalment once the deferment period ends.

MORE: What to know about Base Rate (BR), Base Lending Rate (BLR) & Spread Rate when selecting a home loan?

Do note that this is not free money, you will still be required to pay off the amount you deferred. It is also quite possible that you may end up paying more as interest is still charged, while your tenure may be extended to a longer period. However, if you are facing hard times at the moment, this would definitely be a much better option than defaulting on your loan.

To all the loan borrowers out there, do check with your bank to know if they have this option available for you. Some of the banks who are offering revised loan packages include BSN, Public Bank, CIMB and Maybank Berhad.  As the number of Malaysian victims affected by the outbreak is still quite small, it would take some time before the offers on temporary deferment would catch on, so do be patient!

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