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The idea of losing your job is already a scary enough thought if you’re single and living on your own. Imagine the terror that person will have if they have a family to support AND a home loan to pay off!
The decision to purchase a property is a serious financial commitment that isn’t to be taken lightly. It’ll tie you to regular monthly payments for the next 30 years or more, so if your source of income is suddenly taken away, you’re in for a rough ride.
With the COVID-19 pandemic having a severe impact on the global economy, and countless businesses shutting down or scaling back on staff, the prediction that more than 2 million Malaysians would be jobless in 2020 is a very serious matter.
Now, what will happen to your home loan and more importantly, the dream property that you’ve been saving up for, if you end up unemployed? We’re going to be taking a look at both the good and the bad news, so read on to find out.
The Good News
First up, don’t immediately panic. Under normal circumstances, you should be able to approach your lender in order to work out a plan to still keep your home.
You’d have to do that as soon as possible though, so that you and your lender can enter discussions for a loan modification, and you can get started on the new plan right away.
Many lenders do offer a few options to modify the terms of your loan, in order to provide you with temporary relief, as you look for another job.
This usually comes in the form of lowered monthly payment amounts, or sometimes you’d be allowed to defer those payments altogether for a limited period of time.
If you ever face difficulties in approaching your lender to work something out, you can approach the Credit Counselling and Debt Management Agency (AKPK), which is an agency that Bank Negara Malaysia (BNM) set up in 2006.
AKPK will work with you to assess your unemployment situation and all monthly expenses, so that they can identify potential additional savings, as well as suggest strategies that will help you conserve what little financial resources you have.
With them, you can enter their Debt Management Programme (DMP), where they will negotiate with your financial institution on your behalf, so that you would be granted a personalised repayment plan that fits your paying capabilities.
Do note that a housing loan can be restructured under the DMP, but only if it's from the following financial institutions*:
- Affin Bank Berhad, Affin Islamic Bank Berhad
- Alliance Bank Malaysia Berhad, Alliance Islamic Bank Berhad
- AmBank (M) Berhad, AmIslamic Bank Berhad
- Bank Islam Malaysia Berhad
- Bank Muamalat Malaysia Berhad
- Bank Simpanan Nasional
- CIMB Bank Berhad, CIMB Islamic Bank Berhad
- Hong Leong Bank Berhad, Hong Leong Islamic Bank Berhad
- Maybank, Maybank Islamic Berhad
- Public Bank Berhad, Public Islamic Bank Berhad
- RHB Bank Berhad, RHB Islamic Bank Berhad
*A housing loan with other financial service providers may be considered on a case-to-case basis.
You could also choose to refinance your home loan, which would allow you to swap your existing plan with a new one that has more favourable terms, such as a better interest rate. Better interest rate = lower repayment amount = more relief for you!
Refinancing your home would only be allowed if you have another source of income, for example, your spouse's. If you've lost your job AND you were the only source of income, you won't be allowed to choose this refinancing option, as lenders still need proof of income.
Now, under COVID-19 circumstances, the government issued a statement that all banks were to provide temporary financial relief to Malaysians in the form of an automatic moratorium (read: deferment) on all loan/financing repayments/payments.
This move was to take effect from 1st April 2020, and will last for 6 months. In addition to that, there’ll be no late payment charges, no penalties, and no interest will be accrued during that period.
You can use this 6-month breather period to look for a new job, or take up a few part-time ones, in order to make ends meet until your financial situation recovers once more.
The Bad News
In case you decide to sell off your property because you already have too many loans on hand, bear in mind that property is a form of an illiquid asset.
This means that it’ll be difficult to sell instantly. Especially now that we’re in a buyers’ market, you won’t be getting the cold hard cash as soon as you list it for sale.
You’d also need to take into consideration the various types of fees that come with selling your home, such as the property agent’s commission, property valuation services, and legal fees.
However, due to the COVID-19 pandemic, the government announced on 5th June 2020 that one type of fee would be exempted from 1st June 2020 to 31st December 2021: the Real Property Gains Tax (RPGT)!
That’s right, if you have a residential property and you’re selling for the first time (the exemption is limited to the disposal of three units per individual), you’re eligible for this.
When all else fails and you’ve already exhausted all the options available to you, the worst-case scenario would be having to declare bankruptcy.
This is no laughing matter, and is something that should be avoided at all costs. Once you file for it, your credit history and future employment opportunities will be stained for many years to come.
Nevertheless, if you do decide to file for bankruptcy, it will be able to stop one other process from taking place: foreclosure.
This is where your lender has the right to seize all your assets (yes, including your home), and sell it off to pay for your debts.
This is what's known as an 'auction property'
; the bank will hold an open market process, where your home will be priced at below market value in order to encourage competitive bidding amongst potential buyers. That means rival bidders will offer increasing amounts in order to win and be allowed to purchase that piece of property.
Stopping it would mean buying some time for you to try and get back on your feet, and drag your financial situation into order once more.
Bankruptcy does allow you to keep your home, even if you’ve missed quite a number of payments, because all of your assets would immediately be vested in the Malaysian Director General of Insolvency (DGI).
But, if it’s a secured creditor, your home may still be one of the assets seized in order to be sold, and the proceeds can then be used to pay off your remaining debt.
This is where the foreclosure process comes in. You may have one LAST resort by talking to your lender in order to ‘borrow’ some time, especially if you can show proof that you already have several job prospects in hand.
However, it won’t stop the proceedings indefinitely, and without any way to pay for your home, you could eventually lose it and be forced to move out.
The Moral Of The Story
This is why it’s so important for you to always have an emergency fund for you to tap into. It’s a general rule of thumb that you should have about 30% to 55% of your gross income saved each month.
But if that's not possible, even being able to put away RM50 every month would already be placing you in the 'savers' category, according to financial advisor Yap Ming Hui.
In case of an unexpected situation, such as the loss of one’s job, you wouldn’t be left in such a difficult situation, where your family home is in danger of being seized.
This is also a good reminder for those who are thinking of beginning the journey to home ownership. You need to select a property that sits comfortably within your budget, and not eat up more than half of your salary in monthly repayments.
One way to do that would be to determine how much home loan you would be eligible for. Once you do so, you can then shortlist properties that fit your requirements and have the right price tag.
Finally, always keep an eye out for good deals in the real estate market that would allow you to enjoy as much savings as possible.
For example, the newly reintroduced Home Ownership Campaign (HOC). Under this, selected projects from participating property developers will earn you a minimum of 10% discount on the property price!
You’ll also be able to enjoy a full stamp duty exemption on the instruments of transfer if the property you select is priced between RM300,000 and RM1 million.
Furthermore, properties priced between RM300,000 and RM2.5 million will be given a full stamp duty exemption on the Sale and Purchase Agreement (SPA), if it’s signed between 1st June 2020 to 31st May 2021.
It’s only a matter of you carrying out in-depth research on the projects available, as well as calculating your affordability, to ensure that you end up selecting the right home that’ll be in your family for generations to come!