What Every Malaysian Must Know About Home Loan Rates

Embarking on the journey to buying a new home is a significant milestone. Whether you're a first-time homebuyer in Malaysia or a seasoned investor who’s expanding your property portfolio, buying a new property or subsale requires careful consideration of many factors. 

One of the most important things you should do is evaluate the home loan rates across various options. This will help you make an informed choice when securing your home loan.

To evaluate home loan rates in Malaysia, let’s first look at how banks calculate interest on home loans.

How do home loan rates in Malaysia work?

By understanding how banks charge interest on home loans, you’ll be better equipped to make an informed decision.

In essence, two factors can influence your home loan rates:

1. Standardised Base Rate (SBR)
2. Spread rate

The SBR is linked to the Overnight Policy Rate (OPR), the benchmark interest rate set by Bank Negara Malaysia (BNM). This interest rate is the rate at which commercial banks borrow or lend money to each other overnight and acts as a common interest rate for home loans in Malaysia.

The SBR and OPR have a linear relationship—when one rises, so will the other. Thus, when the OPR is revised, banks will also adjust the SBR to match the amount of change in the OPR.

On top of the SBR rate, different banks can apply their own spread rate. Spread rates are a fixed markup that usually remains the same for the entire loan term. This markup covers the risk of lending money to borrowers, as well as the operating costs and profit of providing the loan. The spread rate will affect the overall home loan rates and the interest you’ll pay during the tenure of your home loan.

How do SBR and spread rate affect home loan rates?

SBR rates can change, but spread rates remain fixed. If BNM shifts the OPR to manage the country’s monetary policy and control inflation, it will only affect the SBR but not spread rates.

If BNM raises the OPR, this will affect the SBR and the interest rates of home loans that are pegged to the OPR. Home loan borrowers will then see their monthly repayments increase.

Conversely, if the OPR is reduced, monthly repayments will also be reduced. For example, at the height of the COVID-19 pandemic, OPR rates were reduced to promote economic recovery. One effect of this was reduced home loan repayments.

Here is an example of the different scenarios.

As you can see, a change in the OPR can have a significant impact on monthly home loan repayments.

Choosing the right home loan

It's crucial to understand that any shifts in the SBR will have an equal impact on all banks. Consequently, the differentiating factor influencing home loan rates lies in the spread rate.

Having said that, a lower spread rate isn’t the only consideration. Be sure to consider other factors such as a bank’s reputation, timeliness and responsiveness, and the flexibility of their loan terms and conditions to make sure you get the best long-term benefits and potential savings.

Ready to apply for a home loan? Check out our home affordability calculator to see how much you can afford and what the interest rates and monthly repayments will be. If you are satisfied with the terms, you can apply online immediately for a hassle-free experience. If you are satisfied with the terms, you can apply online immediately for a hassle-free experience.

💡 The information provided above is purely for educational purposes.