| Before | After | |
| Loan amount (RM) | 500,000 | 500,000 |
| Interest rate (%) | 3.50 | 3.75 |
| Tenure | 30 | 30 |
| Monthly Instalment (RM) | 2,245 | 2,316 |
What do we understand about OPR and its effect on housing loans and repayment? Let’s delve into this important topic and break it down for you.
In this article:
- What is OPR?
- Recent OPR Changes
- What Type of Loan is Affected by OPR?
- How Does OPR Affect Home Loans?
- Calculate the Impact of OPR on Your Home Loan
What is OPR?
The Overnight Policy Rate (OPR) represents the overnight interest rate set by Malaysia’s central bank, Bank Negara Malaysia (BNM). This rate essentially determines the rate of interest for financial institutions that lend each other money overnight. This rate is crucial as it impacts banks’ borrowing and lending activities, influences various financial measures, and ultimately shapes the country’s economic landscape.
The rate has significant importance as it serves as a tool for BNM to regulate the money supply, manage inflation, and stimulate economic growth. When the economy exhibits signs of overheating, BNM might increase the OPR to curb inflation by reducing borrowing and spending, while during economic slowdowns, lowering the OPR stimulates borrowing and spending to bolster economic activity.
By adjusting the OPR, BNM can influence lending rates, liquidity levels, and overall economic conditions. This, in turn, affects factors such as employment, inflation, and the cost of goods and services. BNM consistently adjusts the OPR to fit the Malaysian economy’s needs.
According to BNM, the highest OPR was recorded in April 2006, at 3.50%, when the economy was growing steadily, and higher OPR was needed to manage the risk of higher prices; the lowest rate was 1.75% from July 2020 to May 2022, to support the economy during the COVID-19 pandemic.
Recent OPR Changes
The last increase in OPR was recorded in May 2023, when it was increased to 3.0%. In March 2024, BNM announced that the rate would be maintained at 3.0%. BNM will remain vigilant to ongoing developments to assess the outlook of domestic inflation and growth and ensure that the monetary policy stance remains conducive to sustainable economic growth amid price stability.
What Type of Loan is Affected by OPR?
If you are currently having a loan, the effect depends on the type of loan. Fixed-rate loans will be unaffected as the amount you pay to your bank will remain exactly the same. Typically, this applies to car loans.
If you have a floating-rate loan, your borrowing costs will increase, which means your monthly instalment will be higher. Typically, this will affect housing loans and some personal loans.
For individual borrowers, the interest rate on their loan will increase by the exact same rate as the increase in the OPR. For example, if the OPR is increased by 25 basis points, the interest rate on their housing loan, which was previously at 3.50%, will also increase to 3.75%. Your loan instalment will increase with the higher interest rate.
OPR primarily affects loans linked to the bank’s base rate, such as the Base Lending Rate (BLR), Base Rate (BR) or Standardized Base Rate (SBR). These include variable-rate home loans and floating-rate home loans, where the interest rates fluctuate based on changes in the base rate (BR/SBR), which is influenced by OPR.
How Does OPR Affect Home Loans?
The impact of OPR resonates through various types of home loans:
- Variable-Rate Home Loans: These loans are directly linked to the bank’s BLR or BR/SBR rates. Fluctuations in OPR prompt adjustments in the base rate, consequently affecting the interest rate charged on the loan.
- Floating Rate Home Loans: Similar to variable-rate loans, floating-rate loans see changes in interest rates based on variations in the base rate, which in turn mirrors OPR adjustments.
- Fixed Rate Home Loans: While fixed-rate loans offer stability in monthly repayments, they can be indirectly influenced by OPR. Banks may adjust fixed rates in response to changes in OPR to remain competitive.
Calculate the Impact of OPR on Your Home Loan
The impact of OPR on your home loan is reflected in your monthly repayments.
When OPR increases, banks typically raise their base rates (BR/SBR), leading to higher borrowing costs for homeowners, while when OPR decreases, banks lower their base rates, resulting in lower borrowing costs for homeowners.
OPR Increase:
With a 0.25% increase in OPR, the monthly instalment payment for a RM500,000 home loan with a 30-year tenure could increase by approximately RM71. Over the entire loan tenure, this translates to an additional RM25,560 in total interest payments.
OPR Decrease:
| Before | After | |
| Loan amount (RM) | 500,000 | 500,000 |
| Interest rate (%) | 3.50 | 3.25 |
| Tenure | 30 | 30 |
| Monthly Instalment (RM) | 2,245 | 2,176 |
If OPR were to decrease by 0.25%, the monthly instalment payment for the same home loan could decrease by approximately RM69. This would result in savings of RM24,840 in total interest payments over the loan tenure.
Understanding OPR and its implications on home loans is essential for Malaysian property buyers and homeowners. Whether OPR increases or decreases, its effects ripple through the economy, influencing borrowing costs, monthly repayments, and overall financial well-being.
Proper planning and financial management are crucial for navigating the dynamic landscape of home loans in response to OPR fluctuations.
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