KLIBOR Home Loans Explained

When it comes to home loans, most people only know of BLR and BFR / IFR (Islamic type home loans) pegged mortgage loans. Yet, there are other alternative types of mortgage loans available. In this article, we show you an alternative choice in the form of KLIBOR pegged home loans.

What is KLIBOR

Kuala Lumpur Interbank Offer Rate (KLIBOR) was introduced in June 1987 as an official indicator for Malaysia's interbank money market. It is the interbank lending rate, and is the interest rate charged by banks when lending to each other. As such, it forms a large part of a bank's cost of funds and thus is likely a better indicator of a bank's true cost of funds.

3-Months KLIBOR Pegged Mortgage Loan

3-Months KLIBOR pegged mortgage loan packages were first introduced to Malaysia sometime in 2008. Where most housing loans use BLR / BFR as a reference rate, this type of mortgage loan uses the 3-month KLIBOR as a reference rate in the pricing of housing loan interest rates. Looking at historical data from 2008 - 2013, the 3-Month KLIBOR has always been lower than BLR (though this may not necessarily always be true).

There is also a strong positive correlation between BLR and KLIBOR. This means that when KLIBOR increases / decreases, BLR will likely move in tandem, though the magnitude of the increment or decrement may be differ.

Additionally, there are several characteristics unique to KLIBOR pegged housing loans.

i) Interest Rate

Just like other floating rate home loans, the effective interest rates are based on a reference rate (3-month KLIBOR rate) plus a spread that is constant.

e.g. KLIBOR (3.31%) + 1.10% = 4.31% p.a.

Comparatively, BLR / BFR based packages tend to be based on a reference rate •minus• a spread.

e.g. BLR (6.6%) - 2.2% = 4.4% p.a.

ii) Review and Update of Interest Rate Every Three Months

The major difference with BLR based packages is that where a bank's BLR can change anytime without notice, a 3-Month KLIBOR pegged home loan will be reviewed only every 3 months. As such, while BLR based packages could fluctuate anytime, at most, interest rates for KLIBOR pegged mortgage loans would fluctuate only every 3 months.

Operationally, the KLIBOR rate on the business day immediately before the first loan disbursement date will be used, and renewed every 3 months after that.

Conclusion

KLIBOR pegged housing loans are a new alternative type of mortgage loan. Thus, you can take KLIBOR pegged mortgage loans into consideration when comparing home loans. At this time of writing (Mar 2014), only two banks provide 3 Month-KLIBOR pegged mortgage loans:

a. Standard Charted Bank - Standard Charted Mortgage KLIBOR
b. Hong Leong Bank - Hong Leong Mortgage KLIBOR.

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