How does the euribor affect the fixed mortgage

The Euribor has been the interest for which the banking entities of Europe are ready to lend money between one and the other, it translates as the value of money and usually varies daily, since it is the average sum of all the interest added to interbank loans for a given period of time.

The value of the Euribor is established when, when collecting all the interests, the highest 15% and the lowest 15% of these are eliminated. Starting from there, the arithmetic mean of the remaining values ​​is created.

How does the Euribor affect my fixed mortgage?

To begin with, let’s get to know the Euriborthis has been the European Type acronym Interbank offer, which means that the credit agencies have to lend each other capital in euros.

Therefore, this interbank interest rate for deposits in euro has its origin on January 1, 1999. Generally using a reference rate, variable interest loans.

Now who calculates the Euribor? Until now, the Reuters agency is responsible for calculating the prices of loan offer coming from the main banks of Europe, to later publish them. Normally, in Spain the announcement is made through the State official newsletter. The publication of the Euribor is daily at 11:00 a.m. and reports each of its specific terms: 1 week, 1 month, 3 months, 6 months, 12 months, the latter is used as a reference for the adjustable mortgage.

To fix the Euribor, all the interests are collected and the highest 15% and the lowest 15% are eliminated and a session of the credit agencies that are most active in interbank activities is taken as a daily average.

Being then the mortgages of two types: variable and fixed. However, the Euribor affects more the loans that have the installment and the variable interest, which will directly influence the amount you will pay the bank monthly.

To be more explicit, the installments of mortgages with variable interest rates are calculated considering the differential which is the fixed part to which the Euribor is added in addition to the reference index, which is the interest rate that is adjusted as a measure, to be applied to the differential and which is generally the Euribor. In short, a large part of the interest that is attached to the fee to be canceled is established in the Euribor.

Therefore, if the Euribor rises, the shares increase their value, otherwise they will fall, it can also have a negative position, as was the case last October where it was reflected at a -0.477% where the interest would be paying too low, at the end of which the bank would be returning money to the borrower, although due to the analysis carried out on the financial entities to protect their profits, they entered into the contract signed on June 16, 2019 by the Regulatory Law of Real Estate Credit Contracts.

Why does the Euribor go up or down?

The alteration of the Euribor is due to two factors, firstly to the European economy and secondly to the decisions taken by the ECB whose acronym translates to «European Central Bank» Both have a direct influence on the Euribor, since they affect the money of the banks and from there the value of this interest is determined. However, another factor comes into play which is the money that is in circulation in the market, in case there is little fluidity then the value of the Euribor rises, since it is understood that there is monetary shortage. On the other hand, banks consider the risk exposed when providing money to other entities.

How does the Euribor influence the mortgage?

It is necessary to clarify that the Euribor only affects variable mortgages, fixed ones have no problem in this case. As for those with variable interest rate, the installments will vary during the return of the money in its determined repayment period, because they are influenced by the behavior of the Euribor.

That’s why the fixed rate mortgages are not affected, but the mixed type that is established for a fixed period and the other variable is altered for a certain period of time. Now, the installment of the variable-rate mortgage is made up of the combination of two parts:

• the differential: Which is a fixed percentage which is negotiated directly with the bank, this is applied due to the loan requested for the purchase of a home.
• benchmark index: This has been the most common index used for mortgages in Spain.

To exemplify a little more how the euro affects the variable rate mortgage, we have to acquire a mortgage of about 150,000 euros and they give you a return term of 25 years of 1% + Euribor, which at the time of the negotiation has been 0%, now the fee that has to be paid is 565.31 euros monthly, if after a year the Euribor rises by 0.5%, then the payment will be 598.56 euros, which you must pay each month. This is stipulated by the Bank of Spain.

It should be mentioned that the evolution of the Euribor has a great impact on the real estate market boosting mortgage signatures. In 2008 it rose to 5.4%, reaching a high historical position, but as of 2016 its values ​​have remained negative.

Now, in 2021 it closed its negative values ​​at 0.502% in January it rose to 0.477%, quickly approving mortgage loans, for this 2022 the experts determine that the fees will remain low.

I recommend that before signing a mortgage contract you first seek the advice of a specialisteither private or from the same financial entity, since it can suggest what best suits you for your economic situation, as well as clarify other doubts that may arise.

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