When Bank Negara Malaysia (BNM) announce Overnight Policy Rate (OPR) cut by 25 basis point to 2.5%, it takes many people by surprised again. The first cut was in January 2020. Within the first quarter, you see a 50 basis point reduction. I predicted that there will be more cuts this year but not so soon.
The move by BNM to cut the interest rate is to ease monetary policy amid an uncertain world economy. We are not the only country to lower the interest rate but other emerging markets like turkey and South Korea started the year 2020 by doing the same.
The move by BNM makes our interest rate lowest in 9 years (May 2011). This is good news for loan borrowers at this point of time as this will lower down the Base Lending Rate and Base Rate.
Well, any reduction in interest rate will help in these difficult times.
Let’s look at the loan instalment example reduction and how it can help you:
Loan Amount: RM500,000
Tenure: 35 years
Existing Interest Rate: 4.5%
New Interest Rate: 4.00%
If you look at the calculation above, the monthly repayment is reduced by RM152. If you want to check your current BLR and BR you can go to Banks Interest Rate compiled by BNM as at 03 February 2020.
If we take all the calculation as constant. The total interest payable is RM493,841.00 (4.5%) and RM429,828.00 (4.05%). There are savings of RM64,013.
As I am writing this, there are a few banks who started to defer loan instalment payment for borrowers because they are worried that the effect of Coronavirus might affect the loan payment capability by the borrowers. This is welcome news to some people who are feeling the effect right now rather than letting the loan turns into NPL and people start losing their homes.
Please check with your bank whether do they have this special package. Do not panic if your bank do not have. I think sooner or later they will announce the package. I spoke to my banker friend recently. The borrower will have to send a letter of request for the deferment.
Please understand that this will happen if loan instalment is deferred:
a) Interest will continue to be calculated even though you did not pay the instalment.
b) Either your tenure years will be lengthened or the interest cumulated will be spread in loan instalment when you start back the instalment.
Please know this before you request the bank to defer your loan.
This is not free money as some people thought but this is good to help borrowers at the time being. At very least this will help loan borrowers at these difficult times.
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