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Mortgages
What is Euribor and how does it affect me?
Euribor is the acronym for the Euro Interbank Offered Rate. This is the interest rate at which credit institutions lend money to each other, which is often referred to as “the price of money”.
The Euribor is published daily, but does not really refer to a single interest rate. It is actually an average of the rates at which European banks lend money to each other over a particular period. There is a Euribor value for each of the defined Euribor terms: one week, one month, three months, six months and twelve months. The monthly average for the 12-month Euribor is the most commonly used as a benchmark for mortgages.
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How is the Euribor calculated?
The Euribor is calculated by the European Money Markets Institute from the interest rates it requests every day from each of the banks in the euro zone.
The Euribor is calculated by eliminating the highest 15% and the lowest 15% of the interest rates submitted and calculating the arithmetic mean of the remaining values.
How does the Euribor affect my mortgage payments?
Mortgage loans can have fixed or variable interest rates, although variable rates are more common.
In variable-rate mortgages, the amount we pay each year depends on two components:
- The spread: the fixed part that is added to the Euribor, which we negotiate with the bank.
- The benchmark index: the interest rate used as a benchmark, to which the spread is applied. In most cases, this benchmark is the Euribor.
Therefore, the interest that we pay to the bank for our mortgage is largely determined by the Euribor. In a variable-rate mortgage, if the Euribor index falls, the interest on our mortgage also falls. But if the Euribor rises, the interest on our mortgage also rises.