Understanding the NEW Base Rate effective Jan 2015

New year always come with some new changes. In 2015, we have this thing called "Base Rate" (BR) which will replace the previous Base Lending Rate (BLR) we commonly used for years. What does it mean? What are the differences? How much is the rate actually?

The new system of pricing...

With the new base rate, banks are allowed to price their loans products more efficiently based on their ability. How is the computation method being used for base rate? Read our previous explanation here...

The New Rate for different banks...

• * Indicative Effective Lending Rate refers to the indicative annual effective lending rate for a standard 30-year housing loan/home financing product with financing amount of RM350k and has no lock-in period.
• * Data sourced from Bank Negara Malaysia on 2nd Jan 2015.

The LOWEST Rate is Maybank?

Yes. Maybank set it's base rate to 3.20%, the lowest among all the banks currently. And, guess what? This was already explained and predicted by Finance Malaysia last year !!!

So, does it affect the existing loan borrowers?

No. The new base rate will only applies to those applying for new loans or refinance from 2nd Jan 2015 onward. So, the existing borrowers can rest assured that their loan rate still follow the existing terms and conditions.

BLR is follow the Bank Negara Malaysia OPR rate. How about BR ?

Good question. The previous BLR will fluctuate according to overnight policy rate (OPR) being determined by BNM from time to time. However, since BR depends on the bank's cost of funds and liquidity factors, it can be reviewed and fluctuate anytime to reflect such changes even if there is no changes in OPR. Don't forget the other factors such as statutory reserve requirement (SRR) being set by BNM also.

Any major different in terms of effective rate?

Referring back to the table shown above, the base rate doesn't mean everything. The most important thing borrower must know is the effective rate being charged. Take Maybank BR 3.20% as example, the effective lending rate was 4.55% actually for a 30 years loan. The effective rate generally depends on the loan amount and loan tenure. Lesser the loan amount and longer the loan tenure would lead you to higher effective rate.

Hope this article enlighten you...
Stay tune for more updates...

Is it Viable to opt for Fixed Rate Loan currently? (Oct 2014)

In anticipation of rising interest rate environment, would fixed-rate loans be a better option for borrowers? To recap, Bank Negara Malaysia, for the first time since 2011, raised the benchmark reference rate OPR to 3.25% in July 2014. While many anticipate that there will be another round of hiking soon, should loan borrowers opt for fixed rate loan?

What is Fixed-Rate loan?

By fixing your interest rate upfront, fixed rate loans protect borrowers from future increases in Base Lending Rate (BLR). In other word, the repayment amount will not be changed during the entire loan period.

Who is suitable for fixed rate loan?

Perhaps, if you are looking to avoid any volatility, in terms of interest rate movements, you may opt for fixed rate loan. However, it's not necessarily so in terms of paying lower interest rate. 

Why say so?

Normally, the interest rate on a fixed rate loan was set slightly above what you would be quoted for a floating rate. So, if the financial institutions expect rates to rise, they would quote higher fixed rates too !!! If you think you're clever, your banker also not stupid...

So, how to make decision?

To decide, one must know where are we today and how much more interest rates will rise. With the current BLR of 6.85% coupled with a discount of 2.4%, the net interest rate borrowers are serving now is 4.45%. As far as we know, the average fixed interest rate currently available is 5.00%, which is 55 basis points above current floating rate.

Based on historical OPR movements, there is just another 25 basis points to reach the pre-crisis level of 3.50%. Meaning, there is still another 30 basis points to go beyond the 3.50% OPR level before reaching the fixed interest rate. Since there is still a wide gap to reach the 5.00% level, it's not so attractive to take up fixed rate loan currently.

What do you think?

NEW Base Rate: Good or Bad ?

When Bank Negara Malaysia (BNM) announcing that the new Base Rate will replace the current Base Lending Rate (BLR) starting 2015, many people doesn't know what's that. Is it a good thing or is it just another gimmick to increase the lending rate?

Here, Finance Malaysia Blog hope to answer some of the queries posted by our followers...

First, let us figure out why BNM wanted to change the reference rate. It was being told that the objective is to promote better transparency, pricing discipline and efficiency among financial players.

Second, how was the new Base Rate being determined?

Third, good or bad ?

In fact, it was a good thing to retail borrowers since the new Base Rate would be partially determined by efficiency of financial institutions. Finance Malaysia opines that those big banks will have a better pricing power compared to smaller banks, because their cost of funding is usually lower via current/saving account (CASA). That's the cheapest cost of funding for any banks, other than Fixed Deposit.

Would it affect the existing loan borrowers?

This is the question most of us concerned about. But, BNM said the new Base Rate "should not" have an effective impact on existing loan borrowers. Of course, it was different story if the borrowers refinance their existing loan, either it's personal loan or housing loan.