Euribor, short for Euro Interbank Offered Rate, is an index that tracks the average interest rate at which banks lend money to each other. This index is calculated by determining the average price of these loans. Every business day these banks report their interest rate. Once all of the values have been compiled, the lowest 15% and highest 15% are thrown out. The average of the remaining 70% of the values is then determined and rounded to obtain a figure with 3 decimal places.
The Euribor is the index typically used by banks when they make interbank loans. In the case of mortgages, the interest rate may consist of the euribor percentage plus a fixed margin. For example: euribor + 1.25%.
There are three types of mortgages that take the euribor as a reference: variable-rate mortgage, fixed-rate mortgage, and mixed mortgage. The interest rate for a variable mortgage or mixed mortgage may change, depending upon the euribor rate. On the other hand, the fixed mortgage applies the same monthly payment throughout the term of the loan, and the Euribor does not affect this kind of mortgage.
Relationship between mortgage and euribor
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