What is OPR Malaysia?
The Overnight Policy Rate (OPR) is set by our central bank, Bank Negara Malaysia (BNM). It is a rate a borrower bank has to pay to a lending bank for the funds borrowed. A lower OPR creates the domino effect of lower interest rates – this is meant to encourage consumer spending and spur borrowing activities which in turn, will stimulate the domestic economy.
Why does BNM reduce the OPR?
On 22 January 2020, the Monetary Policy Committee of BNM in a surprise move announced that it is slashing the OPR by 25 basis points to 2.75%, quoting that “the adjustment to the OPR is a pre-emptive measure to secure the improving economic growth trajectory amid price stability”.
BNM announced yet another OPR cut on 3 March 2020 – by another 25 basis points to 2.5% and just two months after that the OPR was further reduced to 2% in May 2020 to encourage borrowing amid the Covid-19 pandemic. This time round, the OPR cut was slashed by 25 basis points which goes to show how real the impact of Covid-19 is on the Malaysian economy.
How does the OPR affect home loans?
When it comes to home loan products, the OPR has a direct influence on a bank’s Base Rate (BR) & Base Lending Rate (BLR), where the BR & BLR usually reduces or increases in tandem to an OPR cut/hike.
With the OPR cut, it is now cheaper for new property purchasers to take up a home loan product as they could leverage on the lower initial interest rate. When the OPR was reduced by 25 basis points (bps) to 3% in May 2019, it had an immediate effect – According to the Ministry of Finance, loan approvals in May soared by 13%.
This is because, with a lower OPR, there is a reduction in the effective lending rate (ELR) of existing home loans which are using a variable or floating rate. In other words, existing borrowers will benefit from either:
- Lower monthly instalment payments. Banks are required to send out a notification letter on the revised instalment amount when there is a BR/BLR revision – this must be done at least 7 calendar days prior to the date the revised monthly instalment comes into effect.
- A shorter loan tenure (if the old monthly instalment sum is maintained). Even though by default, banks are required to lower the monthly instalment of variable home loans accordingly, they will still provide consumers with the option to shorten their loan tenure instead.
What are the new lending rates of Malaysian banks?
Most of the major banks in Malaysia have reduced their Base Lending Rate (BLR) and Base Rate (BR) by 50 basis points in tandem with the recent OPR reduction in May 2020. These include Maybank, Public Bank Bhd, RHB Bank Bhd, CIMB Bank Bhd and OCBC Bank, as shown below. It is anticipated that banks will be lowering their BLR and BR further in the next few weeks following the recent OPR cut.
What is equally important, aside from the BR and BLR, is the spread that the bank charges. This spread here would be the bank’s profit margin. Spread as the banks call it, is always fixed. By adding the BR with the individual bank’s spread (profit margin), you will get the effective lending rate (ELR).
If you are thinking about buying a home, wait no more. This is the best time to start investing. With the rate of OPR being the lowest in over 15 years, getting a bank loan is cheaper and easier than ever. The biggest financial obligation that you’d have to deal with – the monthly repayments, will also now see a reduction. With that in mind, check out Taman Impiana Bidor’s Residential Terrace House with monthly repayment of only RM509 (single storey) and RM1,092 (double storey)!
Article source: https://www.iproperty.com.my/guides/bnm-reduces-opr-to-1-75-how-will-it-affect-your-home-loan-ctr/ (Full article by iproperty.com.my)
