Six Options If You Can't Afford Your Home Loan

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By Vigneswar Rajasurian

What To Do If You Can't Afford Your Mortgage Home Loan

The Covid-19 pandemic has brought an onslaught of retrenchment, pay cuts and loss of income for many. A six-month loan moratorium was introduced in April this year at the first phase of the Movement Control Order (MCO) to minimise the financial impact of the pandemic on individuals and businesses.

Fast forward to October and the automatic moratorium has ended. Loan repayments are payable as per usual beginning this month for Malaysians.

If you are struggling with paying your home loans, or other related loans and expenses for that matter, here are some options to consider:

Apply for the targeted moratorium

While the automatic moratorium has ended, individuals and businesses still impacted by the pandemic may apply for the targeted moratorium extension.

“Individuals who have lost their jobs in 2020 and remain jobless are eligible for the targeted moratorium extension of three months.

“After three months, the moratorium could be extended further at the banks’ discretion depending on the borrowers’ situations,” said Prime Minister Tan Sri Muhyiddin Yassin in a televised address on July 29.

For individuals who remain employed but have had a pay cut, the monthly instalments can be decreased in tandem with the pay cut.

Ideally, application for the targeted moratorium should have been done before Sept 30 to avoid the record of overdue payment this month.

Perhaps your circumstances have changed and you need the moratorium then do contact your bank for more information on applying for the extension.

Selling your home

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If you are approaching the tail-end of your mortgage or have made regular payments over a lengthy period of time, perhaps your house value has exceeded the outstanding loan balance.

Be warned though that the process of selling a home can be very lengthy and fraught with challenges, especially given the current market conditions which may affect house prices negatively.

You may also be imposed a small penalty by the bank for early settlement. Fortunately, there is a Real Property Gains Tax (RPGT) exemption until Dec 31, 2021 for all Malaysians, subject to the requirements.

If the value of your property exceeds existing the outstanding loan amount, you may even end up with extra cash at hand.

Refinance 

Refinancing is the replacement of an existing loan with another loan under different terms. It can be used for debt consolidation and can shorten or lengthen loan tenures, depending on the needs of the borrower.

Homeowners can also refinance to take advantage of the low Overnight Policy Rates (OPR) which in turn lower interest rates. 

Those who refinance their mortgage could end up with lower monthly commitments or a sizable cash-out that can be used to pay off debts or boost reserves.

Rent out a room

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An immediate and practical solution would be to rent out a room in your home. The rental received can be used to subsidise mortgage payments.

The prospect of living with a stranger can be daunting for some. However, adequate screening and background checks of prospective tenants could ease some of those concerns.

Rent out the whole unit

Perhaps subsidising mortgage payments with a room rental isn’t sufficient to make ends meet.

Since the process of selling a home is lengthy and dependant on various factors, renting out the entire home is a more immediate stop-gap measure.

Alternatively, you may rent out each room in the house individually for better rental yield.

The question then arises, where would you stay? Consider renting a room or home elsewhere at a more affordable rate. 

The reduced monthly commitments and the extra rental income would relieve financial burdens during uncertain times.

Seek financial counselling

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Proactive measures are needed to avoid debts and obligations snowballing into more extensive problems down the road.

However, it would be prudent to discuss any drastic options with the lenders and property agents beforehand. Seek counselling from certified financial counsellors on the best way to manage debts and minimise unnecessary expenses.

Another viable option for free financial counselling and education is the Credit Counselling and Debt Management Agency (AKPK).

The agency was set up by Bank Negara Malaysia in April 2006 to help individuals manage their financial situation. It offers financial education, counselling and a debt management program.


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