Housing Loan Interest Rate – Homeowners can now access better home loan deals thanks to the low-rate environment Bank Negara Malaysia has created. Cheaper financing has helped banks reduce the interest rates charged to consumers. Bank Negara Malaysia (BNM) lowered the overnight lending rate (OPR) by 50 basis points to 2% on 5 May 2020. This is the lowest point of the OPR since 2010. What the changes mean for your home loan and why the OPR is changing important to you? Learn more below. What is OPR? The Overnight Policy Rate is the interest rate at which a bank lends to another bank, which is determined by Bank Negara Malaysia (BNM). For property For buyers looking for new home loans, if the OPR goes down, it means you can get a home loan with a lower interest rate from a bank. How will it affect your home loan? In Malaysia, most home buyers spend 30 years paying off their home loan. Do not underestimate the differences of a few percent in the interest rate of loans; you will have to pay a large amount of money in 30 years. Let’s see how interest rates affect your loan/financing repayment.
If you borrow RM500, 000, and the previous bank interest is 3.5%, and now after the OPR cut it is 3%; although the difference is only 0.5%, reducing the loan to RM144.57 per month, but in the long term, over 30 years, you can save up to more than RM52, 045.37. Which means you save about 6% per month in interest payments and about 13% over the loan period.
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Housing Loan Interest Rate
Existing loan If you have ongoing loan terms, consider whether there is an adjustment on your monthly payment. Generally, the bank will follow the interest rate after the OPR adjustment. If you do not receive notification within three or four months, contact your banker and get confirmation about changes in BR rates and monthly installments. Applying for a new loan If you are planning for your future home, this may be the best time for you to look for a new home as OPR cut also leads to interest cut. Kinta Properties Sales Manager, Karen Wong said: “Many of our new home buyers have pounced on the incredible rates, realizing that now is a very good time to borrow money and buy a new home.” You can tour new homes on our virtual tour platform. Still confused? Chat with the Kinta Properties team on 0125008018, every day we answer questions about new homes and property loans. We are here to help get the right home and loan for you. The list below is base rates and effective lending rates of financial institutions as of 12 May 2020, release by BNM.
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*An example of a standard housing loan refers to a loan facility with a financing amount of RM350,000 for 30 years and has no closed period. WITH Bank Negara Malaysia (BNM) has cut the overnight policy (OPR) by 25 basis points to 3% from 13 July 2016, some major banks have reduced their base rates (BR) and base lending rates (BLR).
Among these banks, Maybank was the first to respond. The bank lowered its BR and BLR by 20 basis points to 3% and 6.65%, respectively, with effect from 15 July.
Subsequently, Ambank, CIMB, Public Bank, Hong Leong Bank, RHB and Affin Bank also reduced their BRs and BLRs.
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Borrowing costs will be lower as banks reduce their BRs, making current borrowers and property buyers the winners, Ideal Mortgage Specialist Sdn Bhd marketing head Vincent Ching tells Theerty.com.
Banks are reducing their BRs to maintain their competitiveness, he says. “Normally, if one bank lowers its BR, other banks will follow.”
With the current relatively low interest rate environment and with more BR cuts expected in the future, would first time home buyers be motivated to consider buying property now? In such a competitive financing environment, how does one choose a loan with the so-called “best interest rate” or which best suits one’s repayment needs?
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“In addition to the BR cuts, first-time buyers can also benefit from the various schemes such as MyDeposit, My First Home Scheme, PR1MA, RUMAWIP and so on. But keep in mind, for first-time buyers it’s important to buy within their financial means,” he says.
However, National House Buyers’ Association (HBA) Honorary Secretary-General Chang Kim Loong says a 25 basis point reduction in the BR is not material, and prospective home buyers should carefully assess their ability to repay the monthly loan obligations assess and only proceed with the purchase if they are sure that they will have no problems servicing the loan payments.
“While the reduction is very welcome, it cannot be the deciding factor on whether a prospective home buyer should pursue their dream home,” he says.
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When choosing a home loan, Chang advises potential home buyers to check as many banks and financial institutions as possible to gauge the best terms, as different banks have different criteria and risk appetite.
“Prospective borrowers will need to compare the rates received from the various banks and the terms and conditions attached to the loan before they shortlist the bank with the best package for them,” he added.
“Banks assess each applicant individually based on net income, commitment, repayment, etc., before determining whether he/she is qualified to borrow the desired amount,” he says.
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“Banks have many considerations for loan approval, but the rates they offer are generally around ±0.1%-0.2%,” he adds.
According to Ideal Mortgage Specialist Sdn Bhd senior marketing manager Steven Cheong, banks usually set the interest rate on a mortgage based on two factors. First is the loan amount. Second is the borrower’s credit profile. “If the credit score is good, the buyer can get a better interest rate, and vice versa,” he offers.
RHB Banking Group head of group retail banking U Chen Hock says that differentiation of mortgage interest rates between the various banks in the country is currently negligible due to the prevailing competitive landscape of the industry.
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The fixed rate refers to the fixed interest rate on the product that remains constant throughout the life of the facility.
“This product offers peace of mind knowing that the prices will remain the same throughout the loan period. However, such a premium feature comes at a higher price compared to a floating rate product,” says U.
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On the other hand, a home loan with floating interest includes a variable component, namely the BR. The interest rate is expressed as BR plus spread. The BR will be subject to fluctuations in case of movements in the benchmark costs of funds, he explains.
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Besides the OPR movement, factors that will affect the BR also include the borrower’s credit profile, and the bank’s operating costs and profit margin.
You say that due to the current accommodative interest rate environment, most mortgage products are offered as floating rate arrangements.
There are two concepts of mortgage in Malaysia – the conventional loan and the Islamic loan. To comply with Shariah principles, the Islamic loan must comply with Al Bai Bithaman Ajil (BBA), Musharakah Mutanaqisah, Musharakah and Ijarah contract, explains Ching.
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Both loans are divided into three categories – flexi, semi-flexi and non-flexi. Compared to conventional loans, Islamic loans have a few advantages.
“There is a 20% discount on stamp duty for Islamic loan agreement documents, and the so-called Islamic loan interest is capped at a maximum of 10.75%,” says Ching.
Also when refinancing from a conventional mortgage to an Islamic one, there is a 100% exemption from stamp duty on the existing refinancing loan balance, adds Ching.
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Furthermore, unlike conventional loans, which usually have a lock-in period of three years, most Islamic home financing packages do not have a lock-in period.
During the lock-in period, borrowers may not refinance or foreclose on their loans unless they pay a penalty of 2% to 3% on the outstanding loan.
Home loans are also categorized as flexi, semi-flexi or non-flexi loans. “Flexi” functions provide greater flexibility, namely the ability to make additional payments over the monthly payment amount. The additional payments will be used to immediately offset the outstanding principal balance, resulting in interest savings, U explains.
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In addition, the prepaid amount can be used in the future if the need arises by signing again against the accrued prepaid amount, he says.
“With the two features, mortgage products now become transactional products that enable customers to prepay and re-sign at any time, unlike a typical loan that limits transactions to monthly payments only,” U adds.
However, under a regular non-flexi mortgage, borrowers are not allowed to prepay and re-sign, he adds.
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In terms of semi-flexi loans, a borrower can make prepayments, but they must serve a two-day notice to the bank if they want to withdraw the prepaid amount.
Ching suggests that borrowers go for the semi-flexi loan instead of the flexi loan, as the latter may involve additional costs.
“Some banks will charge the flexi loan borrower a setup fee of RM200 and a monthly maintenance fee of RM10, so these are the
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