Connect with us


Understanding The Overnight Policy Rate (OPR) And How It Impacts Your Home Loan

The higher the OPR, the more home loan instalments you may have to pay. 


As the central bank, Bank Negara Malaysia (BNM) formulates and implements the country’s monetary policy. One of its main monetary policy responsibilities is to decide an appropriate level for the policy interest rate – represented by the Overnight Policy Rate (OPR). 

Every two months, the Monetary Policy Committee of BNM meets to determine whether the OPR needs to be adjusted. The OPR will have a ripple effect on Malaysian banks, influencing lending rates for individuals and businesses. 

In general, a lower OPR prompts banks to reduce their financing rates, encouraging people and businesses to spend and invest more, and save less. This will spur greater economic activities. In contrast, a higher OPR will discourage individuals and businesses from borrowing.   

Read Also: Beginners’ Guide To Property Loans Available For Malaysian Home Buyers  

How Has OPR Changed Throughout The Years? 

Introduced in 2004, the OPR is the benchmark interest rate in Malaysia, and determined by BNM. Once BNM announces the OPR, banks will quickly adjust their lending rates and deposit rates accordingly. 

The OPR has been regularly adjusted through the years – reflecting the state of the Malaysian economy.     

It was highest at 3.50% in April 2006 to cope with the rising consumer price index (CPI) inflation that was at 4.60%. And the OPR was lowest at 1.75% from July 2020 to May 2022 during the recent pandemic.  

Since then, it has risen back to 3.0% – similar to pre-pandemic interest rate levels.   

Source: Bank Negara Malaysia 

How Does The OPR Impact Your Home Loan? 

As the OPR influences Malaysian banks’ financing rates, interest rates on home loans are dependent on its direction. A higher OPR will make it more expensive for home buyers and homeowners (on certain types of home loan packages) to borrow money.  

There are commonly two types of home loans in Malaysia, a fixed rate home loan and a floating rate home loan. 

When you apply for a home loan with a fixed rate, you will be offered an upfront rate that will remain the same throughout the entire tenure period. Typically, you also won’t have the flexibility to make extra payments to reduce the loan amount or interest. On the other hand, a floating interest rate is tied to a base rate offered by the bank, which is influenced by the OPR movements. As a result, your interest rates can fluctuate throughout the tenure period.  

If you are already servicing a floating rate home loan, changes in the OPR will impact you in the near term. 

Your bank will have to notify you of the new repayment amount, which can take effect anytime within three months.  

If you’re taking up a new home loan, other factors may also affect your home loan interest rate, such as promotional interest rates by certain banks due to market competition or your creditworthiness. 

Understanding Your Home Loan Interest Rates 

For many, a home loan will be one of the largest and longest financial commitments in your life, requiring you to pay a monthly instalment for a period of up to 35 years. So, it’s important to understand your home loan interest rates.  

With a fixed-rate home loan where the interest stays the same, you know what to expect and can plan for your finances ahead. However, it usually doesn’t offer you the flexibility to make extra payments when you have more funds on hand. 

When the OPR is low, it could be beneficial to apply for a fixed-rate home loan and lock down the rate throughout the tenure period. It could also offer you an opportunity to refinance your home loan.   

If you’re applying for a floating-rate home loan, the rate is pegged to a base rate that could change according to the OPR. As a result, you may have to pay more interest when the OPR increases and vice versa. 

Read Also: Beginner’s Guide To Fixed Deposits In Malaysia 


Follow Us On Telegram & Instagram!

Join our Malaysia Telegram channel (@dollarsandsensemy) and follow our Malaysia Instagram Page (@dnsmalaysia) as we bring you the latest finance content in Malaysia!