How The OPR Affects Your Home Loan Interest Rates

The Overnight Policy Rate (OPR) is an overnight interest rate set by Bank Negara Malaysia (BNM) that determines the rate of interest for financial institutions that lend each other money overnight.

Inevitably, the OPR affects many financial measures including the foreign exchange rate, lending rates, individual loan and tenure and even the monthly home loan installment. 

Malaysia’s OPR was at its lowest at 1.75% since it was reduced from 3% in 2020 due to the Covid-19 outbreak. The rate was then increased to 2% on 11 May 2022 and 2.25% on 6 July 2022, backed by the fact that the reopening of the global economy and the improvement in Malaysia’s labour market conditions continue to support the recovery of economic activity in the country, according to BNM.

The BNM also noted that given the improvement in economic activity amid lingering cost pressures, underlying inflation, as measured by core inflation, is expected to trend higher to average between 2.0% to 3.0% in 2022.

What does this mean for the housing sector?

When the OPR is increased, this means that it is more expensive to borrow money. This will reduce the affordability for some to borrow money to buy a house. On the other hand, if the OPR is reduced, it encourages consumer spending and spur borrowing activities which in turn, will stimulate the domestic economy.

However, if your existing home loan is based on a variable rate, it benefits you as the loan is based on the Base Rate (BR) and Base Lending Rate (BLR) recommended by BNM. Compared to when the OPR was at 3.5% and at its highest at 3.5% in 2008, you definitely have an added advantage now.

Do note that you cannot negotiate with the bank on the interest rates (BR or BLR) but you can negotiate on the spread. If you are a high-risk individual, such as bad credit, blacklisted, have low income or poor employment history, you are likely to lose out on a good deal spread with the bank.

The question is, does this mean that if the OPR drops, you should go on a shopping spree to buy a house?

Hold your horses first, as OPR rates can change several times a year, you can’t bank your entire home loan amount on the current rates.

Remember that ultimately when it comes to buying a property, you should not bank on the OPR alone. Always check on your needs, financial capacity and remember to always seek for professional advice and help from reputable estate agents and developers.

The changes of OPR rate (2020-present)

Date Change in OPR (%) New OPR Level (%)
06 Jul 2022 +0.25 2.25
11 May 2022 +0.25 2.00
03 Mar 2022 0 1.75
20 Jan 2022 0 1.75
03 Nov 2021 0 1.75
09 Sep 2021 0 1.75
08 Jul 2021 0 1.75
06 May 2021 0 1.75
04 Mar 2021 0 1.75
20 Jan 2021 0 1.75
03 Nov 2020 0 1.75
10 Sep 2020 0 1.75
07 Jul 2020 -0.25 1.75
05 May 2020 -0.5 2.00
03 Mar 2020 -0.25 2.50
22 Jan 2020 -0.25 2.75

Source: Bank Negara Malaysia


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