The relationship between mortgages and the Euribor is more than direct. Indeed, the Euribor is the benchmark to which the vast majority of mortgage loans are linked . And in recent years, it has allowed mortgage loans to be formalized under more competitive conditions by offering better interest rates, reflected in the spread offered by financial institutions that market this highly sought-after financial product.
Of the 7.129 mortgages with changes to their terms, 41,4% are due to modifications in interest rates, according to the latest data provided by the National Institute of Statistics (INE). After the changes, the percentage of fixed-rate mortgages increased from 12,0% to 17,2%, while the percentage of variable-rate mortgages decreased from 87,2% to 81,7%. The Euribor is the rate to which the largest percentage of variable-rate mortgages are linked, both before the change (74,5%) and after (75,5%).
Because the Euribor is the European benchmark index for mortgages. It has replaced other, less effective benchmarks for this type of real estate transaction. In some cases, this is because these benchmark indices have become completely outdated, and in others, because they are about to disappear. In any case, you should be very clear that the Euribor will affect you if you are going to take out a variable-rate mortgage . It will never affect fixed-rate mortgages, as these are governed by completely different parameters.
What does the Euribor provide?
Linking a mortgage to this European benchmark index is currently very advantageous for your personal interests, as it's at historic lows and even in negative territory. The Euribor is currently at -0,191% , a consequence of the European Central Bank's (ECB) reduction in interest rates, which has effectively brought interest rates to zero. Therefore, it's in your best interest to use this index, as you can save money compared to other secondary benchmarks.
The fact that the Euribor is currently so low means that a mortgage is a bit more affordable if you take it out now. Among other reasons, you'll pay much lower monthly installments than just a few years ago. This financial product is offered with much more manageable spreads. In fact, you can find spreads below 1% in current bank offers.
New and cheaper mortgages
With mortgages at historic lows, new mortgages are now much more attractive to take out. You could save one or two percentage points compared to loans from previous years. But there are other benefits you can also enjoy. One is the waiver of fees and other management and maintenance costs, thanks to the very positive performance of the European benchmark index. This could result in a reduction of more than one hundred euros in your monthly payment.
On the other hand, it also implies an improvement in the contract terms, meaning you'll pay less money each year. However, this scenario won't last forever, and interest rates in the Eurozone could rise at any time . This predictable increase will then be passed on to the Euribor. In other words, it will no longer offer such advantageous rates for your interest. In contrast, fixed-rate mortgages won't be affected by this scenario. With this financing model, you'll always pay the same amount every month, regardless of what happens in the financial markets. Therefore, it will give you greater peace of mind because you'll always know exactly what you have to pay for this financial product.
Only linked to the variable rate
Another important aspect to note is that the European benchmark index, the Euribor, is only linked to variable-rate mortgages. This is because they depend on the rates set by the financial markets for this type of real estate transaction. The Euribor was created in the Eurozone to standardize mortgage lending criteria. Your payments will depend on how the benchmark index evolves. It will never be the same; it will fluctuate significantly over the years. However, linking this type of financing to the Euribor is currently very profitable.
From this general perspective, you also can't forget that banks apply a percentage to the Euribor rate. This is called the spread, meaning what your mortgage will actually cost you. Currently, these margins range from 1% to 3% . Therefore, you shouldn't focus too much on the European benchmark index. Instead, pay attention to the spread offered by the financial institution. After all, this is what will determine your monthly payment.
The origin of the Euribor
This index, to which most mortgage loans are linked, is an acronym for Euro Interbank Offered Rate. In other words, it represents the European interbank offer rate. However, it's important to note that expectations of a normalization of the European Central Bank's (ECB) monetary policy haven't yet translated, as might be expected, into an anticipated rise in this index . This means it wouldn't be surprising if its price were to increase in the coming months, just as it has with other financial assets.
On another note, the Euribor can be applied in the short, medium, and long term, so it's published for different periods: annual, 9 months, 6 months, 3 months, 1 month, 3 weeks, 2 weeks, 1 week, and daily. Periodization is important when reviewing bank loans and mortgages because your monthly payment will be higher or lower depending on how the Euribor has performed over the last few months. This is one of the reasons why this benchmark is currently so cheap, to the point that banks are very responsive to customer demand.
Euribor Plus: what is it?
However, there's a variant of this benchmark that will be implemented in the Eurozone in the coming months. We're referring to Euribor Plus. What does it consist of? Simply put, it will provide greater transparency in these types of transactions. The reason for this is easy to understand: this new mortgage benchmark will be based on actual transactions , not on estimates, as was the case with Euribor until now. However, there's still no set date for its implementation in the European commons. It will have a very similar structure to Euribor.
In any case, if you intend to explore other opportunities when formalizing this type of loan, rest assured that you have more options to link this transaction to other reference indices. You should know that all of them are official and published by the Bank of Spain , and you can select them without any restrictions. You will simply need to assess which model best suits your profile as a borrower of this type of banking product. However, according to the latest official data, these indices represent no more than 9% of the transactions signed during the last year.
Other benchmarks
Some of the Euribor's rivals include the IRPH Entities (Mortgage Loan Reference Index), which is used for almost 8% of mortgages taken out in Spain. Another alternative is the IRS (Interest Rate Swap). This is an alternative index to which you can also link your mortgage. While similar to the Euribor Plus, it reflects the evolution of interest rates over five years. This is a substantial difference compared to the reference source discussed in this article.
Finally, the Mibor (Madrid InterBank Offered Rate) is also present, although its popularity has clearly declined. This is an interbank interest rate applied in the Madrid capital markets. However, it has lost the prominence it enjoyed in the 80s and 90s. In any case, you will have to decide which index to link to the mortgage you are taking out. The Euribor leads all these indices. Ultimately, you will simply need to assess which model best suits your profile as a borrower of this type of banking product.