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...

Budget 2015: The People's Economy... What's in it for YOU ?

The much awaited Budget 2015 was presented by our Prime Minister at Cabinet today. Looking on are hopeful Malaysians with their never ended wish lists, which already submitted via various channels. Does your wishes being addressed in the budget?

The People's Economy...

This is the title for Budget 2015, which referring to an economy that based on the daily lives of the rakyat. Very obvious, this is to address the concerns of the rakyat towards the implementation of GST soon.

What's in it?

Here, we only highlighting a few key points which related closely with most Malaysians:

1. Several infrastructure projects will be implemented:
• Sungai Besi - Ulu Klang Expressway (SUKE)
• West Coast Expressway from Taiping to Banting
• Damansara - Shah Alam Highway (DASH)
• Eastern Klang Valley Expressway (EKVE)
• East Coast railway line along Gemas-Mentakab, Jerantut-Sungai Yu and Gua Musang-Tumpat
• 2nd MRT Line from Selayang to Putrajaya
• LRT 3 Project, linking Bandar Utama to Shah Alam and Klang
  
  
2. On GST, an additional lists of items that will not be subjected to GST as follows:
   
   
   
   
   
   
   
3. In addition, GST free for electricity consumption be increased from the first 200 units to 300 units.
   
   
4. No GST for the purchase of RON95 petrol, diesel and LPG
   
5. YA2015 for individuals and households:
• Individual income tax rates will be reduced by 1% - 3%
• Tax payers with family and income of RM4,000 monthly will not have tax liability
• The current 26% individual income tax will be reduced to 24%, 24.5% and 25%
  
  
6. Corporate Tax:
• YA2015: Cooperative income tax rate will reduced by 1% - 2%. Secretarial fee and tax filing fee are allowed as deduction
• YA2016: Corporate income tax rate will be reduced to 24%
• YA2016: Income tax for SMEs will also be reduced to 19%
  
  
7. PTPTN Loan:

• 10% rebate given to borrowers who continuously make repayments for 12 months until 31 December 2015.
• 20% discount to borrowers who make lump sum repayments from now until 31st March 2015.
  
  
8. Youth Housing Scheme... What's the terms and conditions ?
• Smart partnership between Government, Bank Simpanan Nasional, EPF and Cagamas
• For married youth aged between 25 - 40 years
• Household income not exceeding RM10,000
• Maximum funding for 1st home is RM500,000
• Maximum loan period is 35 years
• Government will provide monthly financial assistance of RM200 for first 2 years
• 50% stamp duty exemption on instrument of transfer agreements and loan agreements
• 10% loan guarantee to enable borrowers to obtain full financing including cost of insurance
• Only for 20,000 units offered on a 'first come first serve basis'
  
  
9. Goodies for students:
• Jan 2015, RM100 each be given to all primary and secondary school students
• 1Malaysia Book Voucher of RM250 per student
  
  
10. Expenses incurred for treatment of serious diseases are given tax relief up to RM6,000 per year (from RM5,000 currently). This is available to tax payer, the spouse and children.
    
    
11. Increase tax relief for each disabled child from RM5,000 to RM6,000
    
    
12. Home ownership:
• PR1MA with 80,000 units to be build
• Ceiling of household income is raised from RM8,000 to RM10,000
• Rent-To-Own scheme will be introduced specifically for individuals who are unable to obtain bank financing
• Extending the 50% stamp duty exemption until 31st December 2016
• Increase the purchase limit from RM400,000 to RM500,000
• Skim Rumah Pertamaku with ceiling price raised to RM500,000, and age of borrowers to qualify for the scheme increased to 40 years old
  
13. BR1M will be continue:

• RM950 for households with monthly income of RM3,000 and below. It will be disbursed in 3 installments in Jan (RM300), May (RM300) and Sept 2015 (RM350)
• RM750 for households with monthly income between RM3,000 and RM4,000. It will be disbursed in 3 installments in Jan (RM200), May (RM200) and Sept 2015 (RM350)
• RM350 for single individuals aged 21 and above with monthly income not exceeding RM2,000.
  
  
14. Half-month bonus for civil servants with minimum payment of RM500 to be paid in Jan 2015. Meanwhile, Government pensioners will also receive special financial assistance of RM250.

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?