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Mortgages
What are mortgage indices and what mortgage indices are there?
A mortgage index is the benchmark that is used to update the interest rate in variable-rate mortgages. In other words, the mortgage index is used to adjust the interest rate of variable-rate mortgages to market prices.
The Euribor is the best-known mortgage index but there are other benchmark indices, each with their own calculation method and particular characteristics.
Euribor (Euro InterBank Offered Rate) rates:
The Euribor is the interest rate applied to transactions carried out between European banks, and it's the most frequent index for calculating mortgage interest rates.
The Euribor is calculated as the arithmetic mean obtained from the daily values (eliminating the highest 15% and the lowest 15%) of the interest rates of each of the banks that make up the eurozone.
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Mibor (Madrid InterBank Offered Rate):
This benchmark refers to the average obtained from the daily interest rates at which money has been loaned in the Madrid market over a period of one year. It is only applied to mortgages that were taken out before 1 January 2000, the date when the Euribor entered into force.
Domestic yield rate in the secondary public debt market:
This is a rarely used index obtained from the average yield of public debt in the secondary market. The peculiarity of this index is that it is not calculated by either banks or financial institutions but is simply based on the transactions with public debt securities that have a residual maturity of between two and six years.
Interest rate swap (IRS):
This benchmark is obtained from the monthly average of the mid-spot daily interest rates of the annual rate for interest swaps for five-year euro-denominated transactions, calculated by the ISDA (International Swaps and Derivatives Association, Inc.). In other words, it represents the average price at which money is lent (with a term of five years) in the market for hedging risks through swaps. Although approved in 2012, this system is rarely used in Spain.
IRPH:
This is the interest rate on mortgages of three or more years granted by credit institutions in the eurozone for the purchase of housing on the open market. It is the average rate for mortgages of between one and five years granted by credit institutions in the eurozone for the purchase of housing on the open market. This index is obtained from the weighted arithmetic mean of the interest rates for housing financing transactions with a fixed interest rate for between one and five years.
When are interest rates on mortgages reviewed?
Interest rates for variable-rate mortgages are usually reviewed annually but sometimes they can be reviewed half-yearly or quarterly. The latest rate published before the review will be the new rate applied.