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 The Euribor
Your Best Value in Spain
The quoted interest rates for the vast majority of mortgages in Spain are based on the Euribor.
For clients familier with mortgages in the UK, the Euribor is simply the equivalent of the UK Bank Base Rate, for terrirories operating in the Euro Zone.
The rate that you pay for your mortgage will normally be expressed as Euribor plus a percentage margin: Euribor + 1% being typical.
The mortgage lenders will also reference the particular time/rate of the Euribor, which may be the monthly, quarterly or annual Euribor rate.
For example, if a mortgage rate is quoted as the “annual Euribor”, then the rate will be set at the prevailing annual spot rate, and will remain the same for the following 12 months, when the lender will revise and set the rate again for the following year.
Mortgages in Spain that are quoted as being based on the monthly Euribor, will always have a lower base rate than those related to the annual rate. This is because the base rate is over a much shorter term, so the rate is more favourable as the risk to the banks is lower. The key here is that the rate will be revised monthly, so will be more volatile, and can move monthly, in either direction.
The European Central Bank (ECB) is responsible for setting the base rate in the Euro Zone, and they have a monthly meeting in much the same way as the Monetary Policy Committee (MPC) do in the UK.
We will post the minutes of the monthly meetings of the ECB on our financial news page and you can view the ECB website here http://www.ecb.int/ecb/html/index.en.html.
How the Euribor Works
Euribor (Euro Interbank Offered Rate) is a daily reference rate based on the averaged interest rates at which banks offer to lend unsecured funds to other banks in the euro wholesale money market (or interbank market).
Euribor rates are used as a reference rate for euro-denominated forward rate agreements, short term interest rate futures contracts and interest rate swaps.They thus provide the basis for some of the world's most liquid and active interest rate markets.
Domestic reference rates, like Paris' PIBOR or Frankfurt's FIBOR merged into Euribor on EMU day on 1 January 1999.
Technical Aspects of the Euribor
Euribor is determined (fixed) by the European Banking Federation (EBF) at about 11:00 each day, Central European Time, and is a filtered average of interbank deposit rates offered by a large panel of designated contributor banks (currently more than 50), for maturities ranging from one week to one year.
Euribor rates are spot rates, i.e. for a start two working days after measurement day. Like US money-market rates, they are Actual/360, i.e. calculated with an exact daycount over a 360-day year.
The shorter rates, i.e. up to 6 months, are usually extremely reliable and tend to precisely reflect real market conditions at measurement time. The actual rate at which banks will lend to one another will, however, continue to vary throughout the day.
Euribor was first published on 30 December 1998 for value 4 January 1999.
Reference links
• European Central Bank (http://www.ecb.int/ecb/html/index.en.html)
• Euribor Homepage (http://www.euribor.org/html/content/euribor_about.html)
• Euribor Historical Data (Informative) (http://www.euribor.org/html/content/euribor_data.html)
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