Written By: Henny Maherah
For the third time this year, Bank Negara Malaysia (BNM) issued a new Overnight Policy Rate (OPR) at 2% on 5 May 2020, a decrease from the previous OPR of 2.5% announced on 3 May 2020. Why did they do this? BNM reports that these measures are intended to cushion the harsh impacts of COVID-19 on the Malaysian economy and “create enabling conditions for a sustainable economic recovery.”
But what exactly is the OPR and how will it affect your property investment?
What is the Overnight Policy Rate (OPR)?
OPR is an interest rate policy set by the BNM. In most instances, banks would maximise their outflow by lending as much money to borrowers while maintaining the minimum cash reserves available within the bank. However, in some cases, the cash withdrawal for loans exceeds the amount of cash available in the bank.
In such instances, these affected banks would resort to borrowing cash from other banks. This is where the OPR comes into play by determining the interest rate during loan transactions between banks.
How will the OPR decrease affect your housing loan?
One of the most common forms of bank loans acquired is a housing loan for your property. Many homeowners obtain a loan from the bank that will gradually be repaid within a set duration of time.
The repayment amount would include a loan interest rate, also known as a Base Rate (BR), which is determined by the OPR.
With the recent OPR decrease, how will your repayment terms be affected?
Here’s an example:
|Housing Loan Amount||$150,000|
|Duration of Loan Tenure||30 years|
|Loan Interest Rate|
(OPR + BR)
|2.5% + 0.8% = 3.2%||2% + 0.8% = 2.8%|
|Monthly Loan Repayment|
(Loan Amount + Interest)
|$416 + $133 = $549||$416 + $116= $532|
In short, the lower the OPR, the lower the interest rate for your loan repayment. Malaysians would have an incentive to take up new loans to supplement their spending. The OPR change would also cause a hike in disposable income due to reduced interest payments. You may have more for essential purchases, especially during this challenging time.
While it may seem tempting to invest in a new loan immediately, it is important to remember that the rationale behind the OPR decrease is the current soft economic outlook. Financial budgeting is key. However, the OPR decrease could be a golden opportunity for those who are intending to invest in property and have been putting off their home purchase. If you’re ready to embark on your home buying journey, this may be an optimal time to apply for a housing loan.
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Source: New Straits Times