If everything goes to plan for the Malaysian Institute of Professional Property Managers (MIPPM), potential home buyers in Malaysia may soon find themselves with one more interesting avenue towards home ownership: a America’s income-driven student repayment plan for student loan, or pseudo-version of it BGL BNP Paribas’s progressive monthly loan repayment scheme which allows you to pay only the interest accrued over the first few years of the property loan.
However, the exact method of progressive calculation for Malaysia’s loan repayment scheme is not yet available at the time of writing.
So how does this new system benefit you? If you are an employee, your salary will naturally increase over the years unless you made the jump into a new sector, accepted the lower salary as a trade-off for something you consider worthwhile, or if times are hard.
Banks May be More Inclined to Approve Your Loan Application
No promises on this one yet, as there are not enough confirmed details to say this for sure, but it seems to be a good possibility at this stage. Rather than basing your loan eligibility based on your current debt servicing ratio (DSR), they will be considering your ability to pay in the long term, possibly based on a forecast of your current salary, so if you’re a consistent payee with the intention to continue climbing up the working ladder, you will probably be fine.
Repayments Aren’t Top-Heavy in Difficulty
On one hand, the first few years of your property loan repayment are basically skewed interest-heavy, loan-repayment-light installments. On the other hand, you won’t be finding repayments easier as the years pass by; with this progressive loan repayment proposal, you’ll be feeling the same bite proportionally as you earn a higher income or salary, since the installment amount depends on the amount of dough you bring home. This means you can avoid the illusion of having more disposable income over the next decade and thus be tempted to spend more. And hey, you might even polish of your loan sooner. Who knows?
Of course, there are flip sides of the coin for everything, and that includes this new proposal, as well.
Few Precedent Studies
The progressive loan repayment scheme is a pretty radical concept in the first place, and it hasn’t really caught on in Eastern countries yet. This means that we’ll be wading in quite unknown waters if the banks are willing to consider it a possibility. As afore-mentioned, there are but a few samples of such loans around at this time, so research will be required before we fully get into this scheme.
If accepted, the progressive loan repayment scheme has the potential to change the landscape of the bank loan industry in Malaysia. Looking at the long-term rather than the current earnings of loan applicants may finally be the straw that breaks the figurative camel’s back and give more Malaysians the chance to finally own their own home. Only time will tell if this proposal comes to fruition.