Euribor Rates

Hi All,

Can anybody out there kindly explain what the difference between the 3-month euribor,
6-month euribor and 12-month euribor rates are ?  - and also is any particular one more advantageous than the others when it comes to choosing a spanish mortgage.Many thanks.

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See the link to daily Euribor rate 

http://www.euribor.org/html/download/euribor_2008B.xls

Euribor publish daily like this.

	01/07/2008	02/07/2008	03/07/2008	04/07/2008	07/07/2008	08/07/2008	09/07/2008	10/07/2008
1w	4.130	4.136	4.227	4.277	4.333	4.348	4.347	4.344
2w	4.243	4.245	4.295	4.313	4.352	4.373	4.374	4.376
3w	4.325	4.325	4.358	4.366	4.378	4.391	4.409	4.409
1m	4.448	4.447	4.464	4.470	4.470	4.471	4.470	4.468
2m	4.739	4.738	4.747	4.743	4.744	4.746	4.745	4.745
3m	4.955	4.956	4.966	4.959	4.960	4.962	4.962	4.963
4m	5.003	5.007	5.013	5.003	5.006	5.006	5.011	5.007
5m	5.061	5.066	5.075	5.060	5.059	5.057	5.063	5.060
6m	5.145	5.153	5.165	5.144	5.144	5.140	5.145	5.139
7m	5.184	5.189	5.198	5.176	5.172	5.169	5.176	5.173
8m	5.224	5.226	5.235	5.215	5.208	5.202	5.212	5.210
9m	5.273	5.274	5.282	5.257	5.251	5.243	5.253	5.245
10m	5.323	5.324	5.329	5.299	5.292	5.282	5.292	5.286
11m	5.365	5.370	5.380	5.350	5.349	5.337	5.351	5.338
12m	5.418	5.417	5.432	5.395	5.393	5.379	5.396	5.384

The bank will lend mortgage based on Euribor, for example 12 month Euribor rate + 1.2. Most Spanish banks uses 12 months Euribor. you have to find the bank who has the least 'add-on'. Also you have to know which way bank uses Euribor, some use 12 month every rate, some use 6 month average. You also have to know how frequent bank reset its mortgage rate.

We have a mortgage expert Smelie on this forum. You can ask him to pick one mortgage which is the cheapest on offer on the market.

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along the same lines

And just to cap it all today, we learn that Euribor (12 months) – the interest rate normally used to calculate mortgage payments in Spain – rose to 5.361% in June, the highest level since the Euro was introduced. Euribor has now risen for 5 consecutive months, and is now 18.2% higher than it was a year ago. Compared to June 2004, when it dropped to its historic low of 2.103%, Euribor is now 156% higher, which is to say it is more than one and a half times greater. The latest rise in Euribor will push up mortgage repayments on variable, annually-resetting mortgages taken out last year by close to 900 Euros per year.

Why if the ECB has not raised rates why is the Spanish Euribor going up?

As well is it possible to get a fix term mortgage? I don't understand why anyone would want a flex rate, particularly when interest rates were at life time lows, that the time to lock in long term.

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The reason Euribor is rising when ECB rate is not is that EURIBOR is the rate at which prime banks lend to each other in the interbank money market - when liquidity is a problem (as now) banks charge each other more for their lending facilities - simple laws of supply and demand. It is not influenvced by Central Bank lending. To my knowledge there was only one lender offering money at ECB linked rates and they have withdrawn from lending in Spain as of two months ago.

Fixed rates are generally unpopular here in Spain as they are always quite a lot higher than Euribor linked rates. The Spanish have not yet worked out how to hedge the risk properly (maybe in light of recent happenings with Bear Sterns et al thats a good thing) thus they work on the basis that we need to borrow the money from the Bank of Spain at a fixed rate for 5 years - it will cost us x - thus we charge x plus y to the customer. No such thing as fixed rates lower than annual euribor as they cannot go into the money markets and "buy" their money cheaper to fund mortgage borrowing the way that banks in the Uk or the US do. I will let greater minds than mine decide whether its a good idea or not.

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Thanks, not sure about the UK but mortgages in Canada the interest rate is fixed for a set term, anything from 6 months to 7 years, of course the longer you go the more expensive it gets. The trick to "hedging" your money is to take the 6 month rate but leave you payments at the 7 year rate. This covers you if interest raise and pays the mortgage off faster if they don't. Unlike Americans we dont' have an option for a 30 year fixed rate mortgage and up till very recent the longest term was 25 years. Currently 40 and then moving back to 35.

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When I left the UK five years ago it was possible to fix for 25 years with a few lenders. Problem was that there were significant early repayment penalties and most people refinance in the UK every 2 to 4 years anyway. Guess a small minority might have taken it up but majority would be looking for more flexibility. Base rate trackers were a fairly popular product as they do track Bank of England base rate. I do know of lenders here where you can fix for 12 years but again rates high and largely unpopular - not aware of anyone doing a longer term fix but that doesnt mean it isnt there. Most lenders can offer the option of a hedge instrument so that for a premium (paid by the client) you can set some type of  cap to the chargeable rate. Very few people even knew about it (including brokers it should be noted) until a couple of years ago but even some of the lenders themselves not sure exactly how it works.

What happens in your Canadian scenario if rates rise above the 7 year rate? For many lenders here it wouldnt work as not all of them are that flexible - some products permit overpayment without penalty but many lenders still living in the dark ages and apply a penalty for the whole term of the loan with no permitted early capital reduction.

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Our Spanish mortgage is linked to Euribor and reviewed at every 6 months. Just got bank's letter to notice us the rate is up from next month at appx. 0.4%

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There are lenders that adjust 6 monthly and there are lenders that adjust 3 monthly although most adjust their rates annually. There are still some that link to what is known as IRPH - simplest way to explain is similar to UK standard variable rate (revised annually) but few lenders now use this benchmark.

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It was always my understanding that a 7 year (used to be only 5) we're always linked to a term deposit of the same lenght, so while you might be paying 7% on your mortgage the bank would be paying only 5% on a term and pocket the difference. Of course that was before creative financing.

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Youre right - definitely before creative financing. Mortgage lenders in the UK and US and probably some others as well use various methods of funding but most of it (unless a mutual in the UK) comes from money market purchase (or interbank lending) via different methodologies - swaps, bonds, long term cash etc - it has all become so exotic since the UK became more American in its approach. In Spain it is still considered that if you are borrowing for mortgage purposes you are essentially borrowing the Bank of Spains money - no matter the branding on the wrapper. The Cajas (savings banks) are essentially similar to UK mutuals - thus they lend money that is deposited by their savers - however they will also use BOS funds as well. Arbitrage is a dirty word here so that is one of the reasons the Spanish have no exposure to the US trailer park fiasco - maybe its also a reason that Spanish commercial banks are attracted to banks outside their traditional zone (Santander/Abbey National) as it is a way of them accessing more exotic markets for them to try their luck.  

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As an aside Canada never had a tradtion of 30 year fixed rate mortgages the way the US had.

BTW when someone says the bank will only lend X times a person salary what does that exactly mean. I'm asking becuase someone recently mentioned that Spanish banks are only lending 4 times your salary rather than 8 times.

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The Spanish do not use a multiplier of salary. They work a debt to income ratio based on net disposable (post tax) income. Depending on lender and situation general rule of thumb is that overall debt commitments should not exceed 35% of provable disposable income - some lenders have a slightly different D/I calculation. This incorporates all existing loans and credit card commitments in addition to the new mortgage calculated on the term of the loan on an interest and capital repayment basis. Thus sometimes a lender might state you cannot in their opinion afford the mortgage over a 15 year term but we will lend you the money over 20 or 25 because the payments will be lower and we do not want you to get into financial difficulty and enter into a possibility of arrears. Credit cards in Spain are assessed at 5% of the outstanding balance - thus if you have 1000€ on plastic they calculate that 50€ of your net income is allocated to credit card debt.

To put this into figures in as broad a manner as possible, if post tax income is 3000€ for example the existing credit liabilities added to the new monthly mortgage payment should not exceed 1050€.

It is a much more cautious (and I have to say pragmatic) attitude to debt than the UK certainly and from what I am led to believe the USA. Whether it compares with Canada I could not tell you. In the UK income is assessed on gross figures not net - for the self employed with an imaginative accountant this can sometimes present problems in Spain they would not encounter in the UK.

Hope that answers your question - effectively nothbing like 8 times and less than 4 times as well in most cases.

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Thanks, pretty much the same as Canada, expect of course when money get easy the banks let the standards slip. Was back in Canada over the summer and they are just coming off a major housing boom (Canada is about a year behind the rest of the world, and unlike Gorden Brown, Stephen Harper pulled the plug and called an election knowing things will get worse before they get better, it's also expected that he get re elected) and in talking to people banks were extending mortgages and terms that were really pushing the envelope.

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We have received our 6 monthly review today, effective from next month. It seems they were using last months 1 year rate of 4.35% which has dropped our payments by €50pm. Looking today, I can see that Euribor is currently 3.45%, so hopefully in 6 months time a little extra drop again!

Mark

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That's good news!

We purchased our house 5 months ago and were given an introductory rate of 5.35% for the first six months, and then Euribor rate + 1% fixed for six months at a time.

We should be getting our six monthly review next month which they should use the then Euribor rate + 1% and this will mean that at the current rate we will save 200€ over what we are paying now, and a staggering 442€ if the rate had remained has high as it was six months ago.

As I keep saying, if you are looking at a long term investment then now is a VERY good time to buy Spanish property as Interest rates are dropping, and will continue to drop for some time, and properties are lower in price than they were two years ago!

This is what I expected to happen six months ago when we decided to buy this house, we had a GREAT deal and know our mortgage payments are going to much lower.

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Great to read that you are a happy buyer and taken advantage of the current market

The finance costs will reduce during 2009 and perhaps keep quite low for some time...USA expect their near zero rates to continue well into 2010 and this makes it very much easier for life  style buyers 

The good deals about and low finance compensate for the low exchange rate

Enjoy your property in Spain and I'm sure that it will turn out a great medium to long term buy  

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what interest rates could i expect to pay at todays rates on a interest only mortgage including euribor

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Depends on the lender which depends largely on you subject to how long you want on interest only and loan to value etc whether you fit a specific lenders criteria etc - thus many things to consider - anything from Euribor plus 1.1 upwards

 

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Would someone be kind enough to explain to me how the euribor review works please?  For example, I took my mortgage out in December a couple of years ago and I am on a 12 month review plus 1.10.  I am assuming then that I should of had a review in December.  Do the bank take the euribor for December 08 and add 1.10 and then I either get a reduction or an increase in mortgage payments?  I'm assuming that it will be a reduction as the euribor has gone down.  Am I right in thinking that the euribor rate is dependent on whether you are on a 3 month, 6 month or 12 month review?

Any information would be appreciated.

 

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Most lenders adjust annually although there are a few that adjust 6 monthly or 3 monthly. There is sometimes a disparity between the exact date of completion and the date of review - some lenders produce an offer prior to the month of completion and then the rate adjustment takes place at a rate prevailing prior to the date of completion. If you have had the mortgage a couple of years there should have been an adjustment on or around the anniversary of completion. Thereafter it should occur at 12 monthly intervals (or 3 or 6 depending on lender).  3 month, 6 month and 3 month Euribor are all generally speaking different. It may well be that your review will be reflected in your January payment.

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