Financial Dictionary - Euribor
The Euribor, which stands for Euro Interbank Offered Rate, is the interest rate applied to transactions between European banks. The Euribor also acts as a benchmark index for the interest rate of a mortgage loan.
The Euribor was created in 1999 when the euro came into force as a benchmark index to ensure a fair balance between interests.
How is the Euribor calculated?
- All banks in the Euro zone have to report their interest rates to the European Banking Federation on a daily basis.
- The Euribor takes the interest rates of all banks and eliminates the highest 15% and the lowest 15%.
- Once these percentages have been eliminated, the arithmetic mean of the remainder is calculated.
How does the Euribor affect mortgages?
The Euribor mainly acts as a benchmark index for variable-rate mortgage loans and largely determines the interest that we will have to repay to the bank that granted us the mortgage.
The payment of variable-rate mortgages is determined by two variables:
- The spread which refers to the fixed part that is agreed with the bank.
- The benchmark index which in most cases is the Euribor, although a different one could be used.
If the Euribor index rises, the interest that we must pay on our mortgage will also increase. If, on the other hand, the Euribor index goes down, the interest on our mortgage loan will also be reduced.