Bank Negara's reduction of the Overnight Policy Rate (OPR) and Statutory Reserve Requirement observed by the country's banks can allow home loan borrowers to breathe much easier.

Following the OPR decrease of 75 basis points, two leading institutions � CIMB Bank Bhd and Malayan Banking Bhd � swiftly reacted by reducing their Base Lending Rates(BLR) by 0.55 per cent to 5.95 per cent.

BLR is a floating component of housing loans that together with a fixed prescribed margin, makes up the interest bearing portion.

For a 20-year repayment tenure, the reduction translates to a savings of over RM380 a year for every RM100,000 borrowed.

Existing borrowers who had opted for a BLR-dependent scheme can write in to their banks to seek the new lower monthly repayment amount.

However, should they wish to continue paying the same sum, the excess can be treated as pre-payments which would go towards earlier settlement and consequently, provide interest savings over the loan tenure.

For new home purchasers, the reduction also makes ownership more affordable.

Based on the one-third law of fortitude and assuming a 20-year plan with an interest rate made up of just the BLR, the previous rate of 6.5 per cent would have made a RM100,000 loan only available to borrowers earning at least RM2,240 monthly. At the revised rate of 5.95 per cent, this is RM100 less at RM2,140.

Perhaps the best news, however, is that with the 75 basis point reduction in OPR, banks have room to lower their interest rates by a further 0.2 per cent to as much as 5.75 per cent.

At this level, savings on a 20-year term loan would be over RM520 annually per RM100,000 borrowed.