Just signed and paid booking fees for a condo (subsale) and i m currently doing research on the loan package offered by the banks.
I have a question regarding bank base rate (BR) and the spread rate (SP).
Checked with MBB and they can offer me the best rate i.e. 4.47% (which is BR 3.25%+ SP 1.22%).
Another bank officer told me that notwithstanding that MBB can offer the lowest effective interest rate 4.47%, their SP is very high (i.e. 1.22% , in another words, 1.22% will be fixed for the entire loan tenure).
The bank can offer me 4.50% (which is BR 3.9% + 0.6% SP).
The bank officer told me that their interest rate, even though is higher than MBB (4.50% vs 4.47%) is better than MBB as (1) their SP is lower (2) MBB BR is the lowest and it is unlikly to go lower whereelse their bank got potential to lower the BR.
Can i know whether the statement above is correct? Which bank should i go to? MBB (4.47% (BR 3.25%+ SP 1.22%).) or another bank (4.50% BR3.90%+ SP0.6%)?
Previously, BLR changed according to the Overnight Policy Rate (OPR), which is determined by Bank Negara Malaysia from time to time.
The BR is dependent on banks’ benchmark cost of funds and liquidity. Banks can also review it anytime if there are no changes in the OPR.
With the BR, interest rates are determined by banks’ benchmark cost of funds and Statutory Reserve Requirement (SRR).
BR should differ from bank to bank depending on their own efficiencies in lending.
1) BR will depend on the SRR determined by Bank Negara. It is the minimum level of reserves required for each bank to retain before lending out. If the central bank increases the SRR, the cost of lending will increase. You will notice that BR also increases.
2) The “Spread Rate” above the BR will be determined by the borrower’s credit risk, liquidity, operating cost and profit margin. If the bank’s profit were to increase, the BR would be reduced.
3) Correlation with the OPR. If Bank Negara increases the OPR, the BR will also increase.
BR is a floating rate. That means it could go up or down due to the above reasons.
“The spread is fixed. If we add this two we will get the Effective Lending Rate (ELR). Every bank has a different BR. So, is the BR the determining factor when you choose which bank to take a loan facility from?
“The lowest BR does not necessarily mean the lowest interest rate. It also depends on the spread. BR can be low but the spread can be very high. We have to look at the ELR to determine which package to take
Hope I've answered ur question