Different Types of Housing Interest Rate: Fixed vs Variable Interest Rate

- A housing loan with variable (or floating) interest rate is a type of loan where the interest rate could change at some point in the future.

- In contrast, a housing loan with fixed interest rate will not experience any changes to its interest rate throughout the entire loan period.

- Most housing loans in Malaysia today have variable interest rates (all banks that quote their housing loan interest rates as ''BLR - XX%'' are variable interest rate loans).

How is Interest on a Housing Loan Calculated?

Banks charge interest on the unpaid loan amount of your home loan (also known as the loan principal or outstanding loan balance). Typically, home loan interest rates are calculated and charged on a monthly basis.

Example of Caluculation:

In your first month:

The total amount of


interest charged by the bank is:

RM500,000 x (6.6% - 2.1%) / 12 = RM1,875

Depending on how much


your monthly instalment is, your interest charges may be less in subsequent


months.

 

In your second month:

Previous month's


interest charges = RM1,875 (see above)

Amount allocated to


reducing outstanding loan = RM3,000 (previous month's repayment) - RM1,875


(first month's interest) = RM1,125

 

Outstanding Balance in Month 2:

RM500,000 (initial loan


amount) - RM1,125 (amount used to reduce outstanding loan in month 1) =


RM498,875

 

The total amount of


interest charged by the bank in Month 2:

RM498,875 x (6.6% - 2.1%) / 12 = RM1,871

Daily Rest vs Monthly Rest