Banks increase the interest rates.- and how will it affect you.

Bank Negara Malaysia - our country's central bank.

More banks have announced a revision upwards of their interest rates following Bank Negara's hike of the benchmark overnight policy rate by 25 basis points to 3% last Thursday.

Hong Leong Bank Bhd, Hong Leong Islamic Bank Bhd, EON Bank Bhd and EONCap Islamic Bank Bhd said their respective base lending rate (BLR) and base financing rate (BFR) would respectively be raised by 30 basis points to 6.60% from 6.30%.

The AmBank group said in a press release that BLR, BFR and deposit rates would be revised effective from today. “The BLR for AmBank (M) Bhd will increase by 30 basis points to 6.60% per annum. The BFR for AmIslamic Bank Bhd will increase by 30 basis points to 6.60% per annum,” it said.

For deposit rates, 1-month and 3-month tenure has been revised to 3% from 2.75%, the 6-month tenure to 3.25% from 2.90% and the 12-month tenure to 3.30% from 3.10%. Standard Chartered Bank Malaysia Bhd and Standard Chartered Saadiq Bhd said in an emailed statement that their BLR and BFR has been respectively revised to 6.60%.

So, how does these OPR rate changes affect your home loans???

So - with the OPR rates being increased, some of the banks - such as CIMB, have already increased their BLR rates from 5.80% to 6.05%. Of course - with the increase in BLR rates, housing loans will be more expensive. By some of you may wonder - by how much?

Using my housing loan calculator - I have come up with the following:-

For every RM100,000 loan that you take over 25 years - your repayment amount monthly increases about RM45 for every 1 percent increase in the BLR. Over 25 years, that is about RM13,500 extra compared to what you had to pay back originally. This figure makes it very substantial if you are taking a larger loan - such as RM1million for instance - there is an extra RM450 every month, and a total of RM135,000 over 25 years.

Ex.

Total loan amount = RM 100,000 to be repaid over 25 years.

Previous interest amount = x %

Monthly repayment = RM 550 (assuming a 4.5% - BLR - 1.3%)

Current interest amount = x + 0.25 %

Monthly repayment = RM 575.

Difference in repayment monthly = RM 25.

However, in my opinion, one should not worry about these rate hikes so much. You pay an extra 13.5% of your principal amount over 25 years - all in, adding that to the original interest repayment (assuming 4.5% - you have incurred RM80k in interests), I'm quite certain that your property would appreciate more than 80% over the 25 years.

So, there should be nothing stopping you from going out to buy a property right now despite the rate hike. If you are in for the long run, you know that you wont be making the wrong decision.