Individual Assignment Report: Housing Loan and Moratorium (FIN368)

This individual assignment report, prepared by Dania Sofea for the Diploma in Banking Credit Management (FIN368) course, examines housing loans and their related aspects. The report begins with a definition of housing loans, followed by an exploration of their characteristics, including eligibility, loan amount, loan period, repayment methods, security measures, and the cost of borrowing. It then delves into the advantages and disadvantages of housing loans, such as property security and the ability to acquire a dream house, versus long-term repayment periods and potential penalties. The report also analyzes the impact of the COVID-19 pandemic, specifically focusing on moratoriums offered by banks. It details the moratorium's definition, advantages, and disadvantages for customers, as well as its impact on both new and existing customers. Furthermore, it discusses the demand for housing loans during the pandemic. The report concludes with recommendations based on the findings. The report is a comprehensive overview of housing loans within the context of banking credit management.

DIPLOMA IN BANKING
CREDIT MANAGEMENT (FIN368)
INDIVIDUAL ASSIGNMENT REPORT
PRODUCT AND SERVICES: HOUSING LOAN
PREPARED BY:
NAME: DANIA SOFEA BINTI MOHD ANUAR
CLASS: MBA1195H
MATRIX NO: 2019433056
PREPARED FOR:
SIR MOHD SUFIAN BIN AB KADIR
SUBMISSION DATE:
3 DECEMBER 2021

ACKNOWLEDGEMENT
In the name of Allah, the most Gracious, the most Merciful.
Praise be to Allah, Lord of the universe who give us an opportunity to complete
this assignment without any difficult challenge. Peace and prayers be upon His Final
Prophet and messenger Muhammad.
We would like to express a special thanks to our lovely Sir Mohd Sufian
because without him, we could not do our assignment. She always guides us and
help us for completing this task. He also checks our assignment and give a comment
if we have made a mistake. Other than that, he will ensure all of his students will
complete all task for this subject without having difficulties. His contribute and
kindness that he assists have make all of us feel easier and comfortable. We feel so
proud of our great sir.
Plus, we give a big thanks for those helping us either directly or indirectly for
completed this research. We can only pray that your good will be rewarded by Allah.
Finally, to our family, friends, thanks you for the endless help and support that you
have given to us.
Thank you.

TABLE OF CONTENT
1.1 Definition of housing loan.................................................................................3
1.2 Characteristics/Features of housing loan.........................................................3
1.3 Advantages and disadvantages of housing loan..............................................5
2.1 Moratorium related to the product and services...............................................6
2.2 Advantages and disadvantages of moratorium to the customers....................7
2.3 Impact on new customer and existing customer..............................................8
2.4 Demand on housing loan during covid-19........................................................9
3.0 Conclusion and recommendation.....................................................................10
Reference…………………......................................................................................11

CHAPTER 1: INTRODUCTION OF PRODUCT
1.1 DEFINITION OF HOUSING LOAN
A housing loan is a form of loan service offered by the bank or other financial
institution that a person can use to finance the purchase of a home. Normally, the
customer takes a housing loan to buy a house or a piece of land for the purpose of
building a house, renovating or repairing an existing house. A housing loan is
different from other loans like personal or student loans since the bank can use your
house as collateral. Meaning, if a person fails to pay the bank on time, they can take
the procession of the home. In addition, property is a mortgage that is used as
security until the loan repayment is completed. The bank or financial institution will
hold the title of ownership of the property until the customer completes repaying the
debt and the title of ownership will be transferred to the customer.
1.2 CHARACTERISTICS/FEATURES OF HOUSING LOAN
There are several characteristics or features of a housing loan. The characteristics of
a housing loan consists of six which is eligibility, amount of loan, period of loan,
repayment, security and cost of borrowing. Eligibility means housing loan only for
people that are above 18 years old and below 60 years old who have a stable
income that are eligible to apply for a housing loan from a bank or other financial
institution. Normally, housing loans are for low-income and middle-income groups
who do not have the money to purchase or build a house. Moreover, self-employed
people can also apply to make a housing loan by following the criteria and
requirements set by the bank.
The second characteristic is the amount of loan. The minimum amount of loan starts
from RM80,000 (Maybank) while the maximum amount of loan will be decided by the
bank by looking at the income statement of the applicant. Other than that, there are
other factors that banks are considered before deciding the repayment capacity are
age, qualifications, status of assets, liabilities, stability and continuity of occupation
and savings history.

Next, the other characteristics of housing a loan is the period of loan. Period of loan
means the length of time the loan will exist. It will be decided by the bank based on
how much amount of loan that applicant borrowed. The more that is borrowed by the
applicants the longer the repayment period of loan but normally the period of loan is
30 years. However, a short payment period will increase the amount of monthly
instalments as they are committed and able to repay the loan to expedite the loan
period.
Beside that, repayment is also one of the characteristics of a housing loan.
Repayment must be paid on a monthly instalment based on the agreed amount and
date of payment that is set by the bank. For example, an agreement between William
and the bank to make the payment on the date of every first day of the month. Apart
from that, repayment must be paid without arrears to avoid the burden of paying the
instalment for the next month. Besides, for working people they can make deduction
arrangements of the instalments from their salaries and remittances to the bank.
Therefore, this can prevent the occurrence of arrears of payment and can maintain a
good credit history.
Other than that, the other characteristic of a housing loan is security. The house
purchase using a housing loan is the primary security. It means that if the borrower
buys a house by using a housing loan, the bank will consider it as security for the
loan. The property itself will be used as security for the loan. For example, if the
borrower applies a housing loan to the bank, then later he cannot afford to pay back
the loan. After that, the bank will take the asset which is the house as security.
Last but not least, is the cost of borrowing. The cost of borrowing is also known as
interest rate. It is an additional amount that is charged by the bank to the borrower
that needs to pay together with the amount of loan and interest rate will be formed as
a percentage. For example, according to the CIMB bank, the interest rate for a
RM200,000 housing loan is 4.20%. Furthermore, the borrower that has a low risk
and has a good credit score will pay the lowest interest rate.

1.3 ADVANTAGES AND DISADVANTAGES OF HOUSING LOAN
There are some advantages and disadvantages of housing loans. The benefits of
housing loans include ensuring the safety of the property. Purchasing a home is a
once-in-a-lifetime investment, and you will undoubtedly want to ensure that the
property you invest in is free of any legal issues. This is where obtaining a home loan
can be extremely beneficial. When you approach a lender for a home loan, the
lender will conduct a thorough investigation into the builder's credibility as well as the
property itself. They will go over all of the paperwork associated with the property to
ensure that the structure is legal and that the builder has obtained all of the
necessary clearance certificates from the local authorities. In addition, the lender will
ensure that the property is not embroiled in any legal proceedings. So, with the
lender handling the paperwork, you don't have to go through the time-consuming
process yourself, and if the lender approves the loan, you can be confident that the
property you want to buy is secure.
Other than that, get the dream house. Everyone has their own dream house but it is
difficult to get it because it requires a high cost to build and own a dream house.
However, with a housing loan a person can use it to buy their dream house either a
flat house, terrace house, bungalow and others. Besides that, housing loans also
provide facilities for borrowers to build their own dream house and it can also be
used to make a renovation or repair the house to look more beautiful and
comfortable.
The disadvantages of housing loans are long-term repayment periods. The
maximum period of housing loan is usually 35 years. People who apply for housing
loans are not able to take another loan because they need to spend their whole
income to pay for housing loan instalment and it also does not give freedom to
people to spend their income for other things especially for people who have many
dependents. Therefore, the borrower needs to prepare themselves before taking out
a housing loan. The second disadvantage is that a penalty charge will be imposed if
the borrower wants to settle the loan before instalments. For example, Jay applied
for a RM 200,000 housing loan for 25 years but at the 10 years he wanted to settle
all his repayment, the bank accepted all his payment but he will be charged a penalty
fee by the bank for not paying his loan within the stipulated period.

CHAPTER 2 ISSUES RELATED PANDEMIC OF COVID 19
2.1 MORATORIUM RELATED TO THE PRODUCT AND SERVICES
In March 2020, the whole world is shaken by one virus which is Coronavirus or the
other name is Covid-19 which has killed almost 1.87 million people worldwide.
Besides that, cases are constantly increasing day by day which is the latest record of
Covid 19 cases is 86.4 million around the world and almost 121 thousand cases in
Malaysia while the record of recovered is 48.4 million. Many scientists from various
countries are struggling to find a vaccine for this virus. As of the 18th of March 2020,
the Malaysian Government declared that the whole country will be implementing the
Movement Control Order (MCO) as a preventive measure in response to the Covid
19 outbreak. Meaning, there will be prohibition and restriction of movement. The
implementation of the MCO had forced the Malaysia economy into a recession as a
result of series of decline in the economic growth. The MCO has limited Malaysian
from contributing toward economic activities.
Many individuals and businesses were affected by the pandemic due to the current
restrictions on movement, which is when Bank Negara Malaysia (BNM) stepped up
efforts by introducing multiple measures. One of them is financial relief in the form of
an automatic moratorium, also known as a deferment package, for all loans and
interest for individuals, small and medium-sized businesses, and sole proprietors for
a six-month period beginning April 1, 2020. To put it simply, borrowers or customers
with loan financing who meet the conditions do not need to make any repayments
during this period, and no late payment charges or penalties will be imposed,
according to BNM.
On July 28, 2021, the Prime Minister announced a RM150 billion relief spending
package, which included the reintroduction of the loan moratorium. The six-month
plan was slightly different this time because it allowed borrowers to apply without
providing supporting documentation. Furthermore, there are no longer any terms and
conditions such as income reduction or loss, and there are no prior background
checks on whether you have lost your job. It is important to note, however, that
approved borrowers can only choose between a three-month loan moratorium or a
50% reduction in their loan repayments for six months.

2.2 ADVANTAGES AND DISADVANTAGES OF MORATORIUM TO THE
CUSTOMERS
There are some advantages and disadvantages of moratorium to the customers. The
advantage of a moratorium to the customer is it helps in reducing financial stress.
The moratorium is given to all those who make housing loans to the banks. The
purpose of the moratorium is also to reduce the burden of customers from making
any repayments to the bank in the face of the Covid-19 crisis that hit the world. Since
Covid-19 hit the world, the government has ordered all job sectors to be closed for a
while to reduce the spread of Covid-19 among the public. Due to that, the workers
also did not earn a salary due to not working because their company was ordered by
the government to be temporarily closed. Therefore, individuals cannot repay their
loans because they do not have any income, especially for individuals who have
many individuals lose their jobs and experience salary reductions due to the
company not being able to cover the cost of paying employee salary as a result of
not operating for a long period of time. Moreover, many individuals are burdened
with debts that are too much to pay. Therefore, the government instructed the bank
to give a moratorium extension to the customer which is to give a deferred loan
repayment for 6 months to reduce financial stress.
Next, with the help of a moratorium, throughout the period of it, the credit score of an
individual will not be affected and they will not be classed as defaulting. So, by not
paying any loan is not going to have an impact on a person’s credit score nor credit
history. This will indeed benefit a borrower’s future loans, where they can easily
utilise the loan. Also, even if someone fails to repay the loan, the bank will not take
action by giving any penalty.
The disadvantage of the moratorium to the customer is that the payment period is
getting longer. The government gave a moratorium to individuals of 6 months which
means individuals do not have to make any repayment to the bank within the 6
months and the repayment will be paid as usual after the 6 months of moratorium is
over. The moratorium also burdens an individual as their loan repayment period is
extended from the period they previously agreed with the bank. For individuals who
have planned to take another loan after paying the existing loan they have to
postpone their intentions because the existing loan period has been extended for 6

months. For example, Mr. David made a housing loan of RM 300,000 for 35 years
but due to the Covid-19, the government gave a moratorium extension for 6 months
and the repayment period of Mr. David is 35 years and 6 months.
Other than that, the accumulated interest will be more expensive is one of the
disadvantages of moratorium to the customer. As the repayment period is extended
it also causes the total accumulated interest to be higher than before. Furthermore,
when the moratorium period ends the probability for individuals to make repayments
as usual is 50% as many individuals are laid off and the chances of finding another
job are very difficult due to the Covid-19 pandemic. This is because many companies
do not want to hire a new employee. Therefore, this may result in a customer failing
to repay their loan in the future if they are unable to make a fixed payment, due to
the additional interest of 6 months.
2.3 IMPACT ON NEW CUSTOMERS AND EXISTING CUSTOMER
Covid-19 has given a huge impact to the whole society. It also gives an impact on
housing loans to new customers and existing customers. One of the impacts of
housing loans on new customers is the difficulty for those who want to apply. This is
because the needs of individuals who want to apply for a loan such as a housing
loan in the state of Covid-19 gives them difficulties in the future because housing
loans have a high risk and a long maturity period as well as a relatively high interest
rate and monthly instalment. Moreover, it also burdens new customers especially for
those who do not have a good income and have many dependents and indirectly
cause their names to be blacklisted by the bank. Therefore, the demand for housing
loans to new customers is very low due to the unfavourable economic situation. The
economic recession that is happening in our country now has caused many people
to acknowledge the lack of income due to job losses.
Next, it also gives an impact to the existing customer which is that many existing
customers are unable to make a repayment which means many existing customers
are unable to make a repayment. As stated before the government has given a
moratorium extension to the borrower for 6 months but I affect them after the
expiration of the moratorium. Many existing customers are experiencing financial

stress due to not being able to make a repayment. During the Covid-19 the
blacklisted rate may increase due to the deteriorating economic conditions that are
affecting many communities.
2.4 DEMAND OF HOUSING LOAN DURING COVID 19
Customers demand for housing loans is decreasing compared to before the
occurrence of this Covid-19 because due to Covid-19 many individuals are lacking
income and need to face high cost of liability, especially for individuals who have
been laid off. They do not have any income to support their needs. In addition,
individuals who are self-employed such as opening their own businesses are also
affected because the government has asked all employment sectors such as tourism
sector, business sector, agriculture sector, services sectors and so on should be
temporarily closed to stop the spread of Covid-19 among the community. Therefore,
many businesses suffer losses and sales of companies decrease which will lead to
bankruptcy. Because of that, individuals do not want to take high risk to apply for a
housing loan because they are worried about not being able to pay the monthly
instalment continuously without any arrears.
Next, demand for housing loans decreased during Covid-19 because housing loans
are a type of loan that has a long maturity period compared to other types of loans.
Usually, the minimum maturity period of a housing loan is 35 years (Maybank) and it
gives a burden for individuals who want to apply for a housing loan during this
pandemic. Since Covid-19 takes a long time and cannot be expected to recover.
Therefore, it is a high risk especially for the B40 group to apply for a housing loan
with the country’s economic situation which is deteriorating and the occurrence of
economic recession. In addition, during the Covid-19 many individuals do not want to
apply for a housing loan because they are worried that it will affect their credit scores
due to not being able to pay the monthly instalment properly and there are any
arrears and can indirectly result in legal action and their name will blacklist.

CHAPTER 3 CONCLUSION AND RECOMMENDATION
Since the Covid 19 coronavirus pandemic outbreak hits the global population, the
economy turns into a turmoil. People are wondering and questioning how safe their
money in the bank is. Many people are getting nervous about what might come in
the future since everything is in a deep water of uncertainty. Therefore, the
government also helps the borrower by giving a moratorium for 6 months to all
borrowers, so that they do not have to repay the loan within the prescribed 6 months.
The government has also given a moratorium for the second phase for 3 months
until December 2020 for targeted groups which are for individuals who have lost their
job and are looking for a new job and for individuals who are experiencing a salary
reduction. However, housing loans also provide advantages and disadvantages to
borrowers either now or in the future. This situation also gives a view for a new
customer who wants to apply for a housing loan in the current situation, Covid 19
especially those who do not have enough income to cover the repayment of the loan.
Aside from that, making a larger down payment and using variable pay are two ways
to reduce the loan's burden. Another method for lowering your mortgage payment is
to make a substantial down payment when you first take out the loan. The higher
your down payment, the lower the interest rate quoted on the loan, which reduces
the overall burden of the loan from the start. Furthermore, if the loan amount is less,
the processing fees are reduced. Furthermore, you can use your variable pay, which
is income earned from annual bonuses on salary, incentives, and so on, to pay
additional EMIs in addition to the 12 annual instalments.

REFERENCE
Aditya Birla Capital. (2021, June 8). Knowing the advantages and disadvantages of availing
a home loan. What are the Advantages and Disadvantages of getting a Home Loan -
ABC of Money. Retrieved from
https://www.adityabirlacapital.com/abc-of-money/advantages-and-disadvantages-
home-loan.
All you need to know about Malaysia's loan moratorium 2021. (2021, July 15). Retrieved
from https://www.propertyguru.com.my/property-guides/bank-negara-malaysia-loan-
moratorium-covid-24230.
Amrita, N. (2020, June 18). All you need to know about EMI moratorium, its advantages and
disadvantages. EMI Moratorium | All you need to know about EMI moratorium, its
advantages and disadvantages | Business News. Retrieved from
https://www.timesnownews.com/business-economy/personal-finance/loans/article/all-
you-need-to-know-about-emi-moratorium-its-advantages-and-disadvantages/608181.
Kagan, J. (2021, May 19). Home mortgage. Investopedia. Retrieved from
https://www.investopedia.com/terms/h/home-mortgage.asp.
Lim, I. (2021, July 14). Malaysia's new six-month loan 'moratorium': All you need to know
before you say 'yes': Malay mail. Malaysia | Malay Mail. Retrieved from
https://www.malaymail.com/news/malaysia/2021/07/14/malaysias-new-six-month-
loan-moratorium-all-you-need-to-know-before-you-say/1989645.
Mishra, S. (2019, June 11). 7 key features of home loans. Property in India. Retrieved from
https://www.makaan.com/iq/finance-insurance-saving/7-key-features-of-home-loans.