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Malaysia Home Loan Rate: How Will Lower OPR Affect Your Home Loan?

For the second time this year, Bank Negara Malaysia (BNM) has announced the reduction of the Overnight Policy Rate (OPR) by 25 basis points to 2.5% due to the COVID-19 outbreak on March 3, 2020. This is the lowest value in almost 10 years. BNM noted that the COVID-19 outbreak has affected production and tourism, leading to higher risk aversion, tighter financial conditions, and more financial market volatility.

Let’s take a look at how it will affect your home loan.

What is OPR?

The OPR is the interest rate at which a bank lends to another bank, which is set by BNM. This rate affects the country’s employment, economic growth, and inflation. It is an indicator of the health of a country’s overall economy and banking system.

How Will The OPR Affect Your 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%.

In other words, existing borrowers will benefit from either:

1) Your cost of borrowing will be lessened.

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2) A shorter loan tenure (if the old monthly installment sum is maintained).

Take Note: Current borrowers who have taken up a fixed deposit rate home loan will not see any changes in their monthly installment payments.

On the contrary, thou an OPR reduction is good news for those taking out property loans, savers looking for more returns on their savings accounts and fixed deposits will be disappointed. The interest rates for these savings instruments will be reduced in tandem with the OPR cut.

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