How Does Base Lending Rates (BLR) affect your Home Loans.

Bank Negara Malaysia - our country's central bank.

On the 5th of May 2010, Bank Negara Malaysia raised the country's Overnight Policy Rate (OPR) by 25 basis points from 2.25% to 2.5%. This was announced by the governor Tan Sri Dr Zeti Akhtar Aziz. The previous rate increase was in March 2010 - when the OPR was increased from 2% to 2.25%. Based on that news article - most analysts expects another 25 basis point hike in the next Monetary Policy Committee meeting in July 2010.

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.