Buying property? Higher interest rates in 2014

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Many experts / bank analysts are expecting the BNM (Bank Negara Malaysia) to revise upwards the OPR (overnight policy rate) by 0.25%. Typically this meant that the interest you pay for mortgage would go up by similar figure. Some say as soon as Q1, some say Q2. This is unavoidable due to inflationary pressures. As we know, subsidy rationalisation programmes will continue while toll rates are also going up next year followed by GST in 2015. For house buyers, do you know how much is 0.25% to you? Should you be concerned? Actually, if you own a lot of properties, then you should be worried. However, if you own just one property, unless you are buying above what you can afford comfortably, then you ought to be worried. 

interest rateLooking at the chart in, how a 0.25% affects the amount of mortgage that you would need to pay. If you are having a RM500,000 loan and you got yourself a 90% loan amount. With a tenure of 30 years and interest rate of 4.25% (Means BLR – 2.35%), you need to pay a monthly installment of RM2,214. If the interest rate goes up by 0.25%, you would need to pay extra Rm67. This is an additional increase of about 3%.

For people looking at buying your first home, this should not worry you too much. This is because if you look at it from another perspective which is potential capital appreciation, even a 0.5% increase on your property per year meant RM500,000 x 0.5% = RM2,500 which translates into RM200 per month. In other words, if you do not buy, you lose out on the potential capital appreciation. If you are buying for investment, think again, can your rental cover the mortgage after the increase in interest rate? This is because I don’t think this will be the only adjustment. If inflation really inches up too much, this may be just one of the adjustments for 2014.

written on 23 dec 2013.

Suggested next article: Penang property for rental

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