How will the OPR increase affect your home loan?


Bank Negara Malaysia has increased the Overnight Policy Rate (OPR) by 25 basis points to 2.25% – here’s how it will affect Malaysian homeowners and investors home loan. 

Featured Image: Malaysia.

OPR is the interest rate at which a bank lends to another bank.

Bank Negara Malaysia (BNM) has increased the Overnight Policy Rate (OPR) by 25 basis points from 2% to 2.25% on 6 July 2022. Let’s take a look at how this will affect your home loan. Read the updated article here: BNM reduces OPR to 2.25% – How will it affect your home loan?

Why the rate hike?

Bank Negara Malaysia (BNM) expects the Malaysian economy to further expand this year, thus rationalising the OPR hike. Amid the positive growth prospects for the Malaysian economy, the Monetary Policy Committee (MPC) decided to further adjust the degree of monetary accommodation. This is consistent with the MPC’s view that the unprecedented conditions that necessitated a historically low OPR have continued to recede.

Additionally, central banks are expected to continue adjusting their monetary policy settings, some at a faster pace, to reduce inflationary pressures.

Changes in the OPR trigger a chain of events which affects the base rate (BR), base lending rate (BLR), short-term interest rates, fixed deposit rate, foreign exchange rates, long-term interest rates and ultimately, a range of economic variables, including employment, prices of goods and services (inflation) and economic growth.

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What happens next to your home loan? 

  1. Banks will see an increase in profits.
  2. Fixed deposit rates will increase (Good news for those who have substantial savings)
  3. BNM expects the inflation rate to remain between 2.2% – 3.2% for the year.
  4. Base Lending Rate (BLR) and Base Rate (BR) will increase (Thumbs down for borrowers).

Whenever the OPR goes up, banks will pass on the cost in the form of a higher base rate (BR) to consumers; this means it is now more expensive for purchasers to take on a home loan as either:

  • Your monthly home loan instalment is bigger;
  • Same amount of monthly instalment as before, but loan tenure increases.

 In view of the recent OPR hike, it is anticipated that banks will be increasing their BLR and BR by 25 bps in the next few weeks.

Let’s take a look at some of the major banks who have increased their BR and BLR rates in tandem with the OPR hike:

BANK BR BLR Indicative Effective
Lending Rate
Public Bank 2.53% 5.72% TBC
CIMB 3.00% 5.85% TBC
Maybank 2.00% 5.65% TBC
RHB Bank 2.75% 5.70% TBC
OCBC Bank 2.83% 5.76% TBC

*As of 20 May 2022

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How much will your home loan go up by?

Let’s consider the following scenario as a case study:

  • Loan amount:   RM 500,000
  • Current interest rate:   3.83 %
  • Tenure:   30 years
  • Current instalment RM2,367

Thus, a 0.25% increase in OPR for a RM500,000 home loan with a 30-year tenure is likely to increase the monthly instalment payment by RM71.

This means that the borrower will have to pay an additional RM25,560 in total for interest payments in that 30-year period. Some people will say this is not much some say otherwise.

Some words of advice for those looking for a home loan

In reality, the OPR is pretty volatile; many are not aware that the interest rate 20 years back was more than 10%! Borrowers must know how to hedge against the interest rate as a home loan is a long-term commitment.

Proper planning is imperative and it is important to determine your maximum loan repayment ability.

Strive to choose the instrument which best achieves your own hedging objectives; for instance, you can sign up for a Flexi loan and place your excess funds in your Flexi account. Should there be a further increase in interest rates, you will not feel the burden as much as a Flexi home loan provides you with the option to make payments in advance. Additionally, with a shorter tenure, you save on paying a greater amount of interest to the bank and also have the option to withdraw any excess payments made.

Alternatively, seek advice from a mortgage expert who can help you achieve your homeownership dream the financial-friendly way.

Article is written by Miichael Yeoh | Edited by Reena Kaur Bhatt

Miichael Yeoh, CEO & Founder GM Training Academy PLT

DISCLAIMER: The opinion stated in the article is solely of Miichael Yeoh and is not in any form an endorsement or recommendation by Readers are encouraged to seek independent advice prior to making any investments.

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