How does it affect you?

The change towards the new framework should have minimum impact on borrowers. Take the rates offered by Maybank for example. Based on the previous BLR rate of 6.85%, the “BLR -2.40%” offer means that the customer pays 4.45% on the mortgage.

With the BR system, the bank will have to reveal its base rate and also disclose its margin, which will determine the ELR. Maybank has set its Base Rate (BR) at 3.20%. Here, interest is presented as “base rate +1.35%”, which means that the effective rate that the customer will have to pay on the mortgage is 4.55%.

Ultimately, it’s the ELR that will determine how much you will have to pay for your mortgage. Here is a comparison of how much you will be paying for your home loan under BLR and under BR.

With the new framework, a home loan borrower of Maybank may have to pay an additional RM34 a month, which amounts to RM12,240 more by the end of the loan tenure.

Though certain banks may be setting a higher BR compared to others, they can sometimes offer lower ELR to customers in order to remain competitive. For example, OCBC Bank has a BR of 3.83% while RHB Bank’s is 3.75%. However, OCBC Bank offers a lower ELR at 4.70%, while RHB’s ELR is 4.75%. This essentially means that OCBC is willing to take a smaller profit margin in order to be more competitive.

Loans that are already approved and extended prior to January 2, 2015, will still follow the old BLR until the end of the loan tenure.

For new loan applicants and refinancing applicants, the new BR framework will have a direct impact on interest rates with effect from the date. Banks are still required to display both BLR and BR on their branches and websites.