How does the Euribor affect the owner and what can be done to improve the conditions of the mortgage? 90% of home buyers in Spain opt for variable rate contracts, calculated annually at a margin plus Euribor increases. If the Euribor rises, your variable rate mortgage does too. Shall we tell you?
90% of home buyers in Spain opt for variable rate contracts, and the question arises: How does the Euribor affect the owner and what can be done to improve the conditions? mortgage conditions? Imagine the European Central Bank (ECB) as the "bank" in the game of Monopoly, setting the "price of money" similar to the interest rate.
The Euribor acts as a measure of how banks lend to each other. When the ECB raises the price of money, the Euribor tends to increase, directly impacting mortgages and, by extension, investment funds.
What is the Euribor?
The Euribor, or Euro Interbank Offered Rate, is an interest rate that is used as a reference to set the interest rate on many mortgage loans in the euro zone. . In most cases, mortgages are established with a variable interest rate linked to the Euribor. Most variable mortgages are expressed as "Euribor + X%", where X is a differential established by the lending bank. For example, if you have a mortgage with an interest rate of "Euribor + 1%", and the Euribor is 1%, your interest rate would be 2%.
< p>The Euribor is a variable index that changes regularly, generally every month. In November, there has been a decrease in the 12-month Euribor, which can translate into more favorable financial conditions for buyers. The relationship between the European Central Bank (ECB) and the Euribor plays a crucial role, since the ECB's decisions on interest rates influence the Euribor and, therefore, mortgages and investment funds.
How is the Euribor calculated?
The Euribor, a key index in the financial world, represents the price at which banks in the euro zone lend money to each other. Since its introduction in 1999, the 12-month Euribor has become the main reference for nearly 90% of mortgages in Spain, especially variable-rate ones. Its daily calculation is based on the operations of the banking entities, eliminating 15% of the highest data and 15% of the lowest. On 70% of the remaining data, the average is calculated, the resulting value of which is the Euribor, most frequently at 12 months.
These mortgages focus annually on a margin plus the Euribor increases. If the Euribor rises, your variable rate mortgage does too. And this is happening, right? It is important to note that the Euribor is a variable index that changes regularly, generally every month. Therefore, the amount of your mortgage payment may fluctuate accordingly. If the Euribor rises, it is likely that your monthly payments will also increase, and vice versa.
Why is there such a high percentage of variable rate mortgages?
The prevalence of variable mortgages in Spain, especially linked to the Euribor, is attributed to various factors that have influenced the financial decisions of home buyers. Here are some key reaasons:
History of Low Rates: For a long period of time, interest rates have been relatively low, leading many buyers to opt for variable mortgages by offering lower initial rates. attractive compared to fixed ones. Initial Appeal: Variable mortgages often start with lower interest rates compared to fixed ones. This may be attractive to buyers looking for lower initial monthly payments. Flexibility: Variable mortgages offer some flexibility in terms of interest rate adjustments, which can be beneficial if market conditions change in the borrower's favor. Financial Culture: There is a deep-rooted culture in Spanish society of preferring variable mortgages. The perception that interest rates will remain low may have contributed to this trend. Ignorance of Risks: Often, buyers may not be fully informed about the risks associated with variable mortgages, especially in relation to the variability of the Euribor.
So, what can you do to improve the conditions of your mortgage?
If we told you that we could do a lot, we would be lying, but we can tell you and assure you the importance of understanding the terms of your mortgage. Evaluating and modifying the conditions of the mortgage is a common concern for many owners in Spain, where 90% of homes have variable rate contracts. Changing the mortgage to another entity, negotiating with the current one or using a mortgage broker are viable options. Viability depends on individual factors, such as credit history and financial stability. Additionally, the balance between the benefits and costs associated with each alternative must be carefully considered.
ECB and Euribor
The relationship between the European Central Bank (ECB) and the Euribor plays a crucial role in mortgages and investment funds. The ECB's decisions on interest rates influence the Euribor, directly affecting variable rate mortgages. If the Euribor rises due to monetary policies that increase interest rates, this not only impacts mortgages but also investment funds. The constantly changing fluctuation of the Euribor creates challenges and opportunities for those interested in real estate investments, requiring a deep understanding to make informed decisions in this dynamic market.
Relationship between Euribor, Mortgages and Investment Funds
The relationship between the Euribor and the real estate market is crucial to understanding how it affects mortgages and investment funds. In the case of variable rate mortgages, the 12-month Euribor acts as an annual reference, directly influencing loan costs. If the Euribor rises, mortgages also rise, impacting accessibility to housing and real estate investments.
But how is this linked to investment funds? The answer lies in monetary policy and inflation. The decisions of the European Central Bank (ECB) on interest rates influence the Euribor. If the ECB raises rates to combat inflation, the Euribor also increases. This not only affects mortgages, but also has repercussions on investment funds, since financial market conditions impact the profitability of these assets.
The Euribor in 2024
The favorable outlook for the Euribor for 2024, according to futures and financial swaps, opens the door to unique opportunities. This information not only benefits buyers in the present, but also allows them to participate in a market with positive projections in the medium term. This is where real estate plays a crucial role in guiding buyers towards strategies that take advantage of these future opportunities.
For home buyers, understanding how the Euribor influences mortgages is essential. The decrease in the 12-month Euribor, as occurred in November 2023, can translate into more favorable financial conditions for buyers. This decline is not only a numerical phenomenon, but has a direct impact on personal financial stability.
Having correct professional advice that provides us with clear strategies can contribute a lot to the success of your real estate purchase or investment. Negotiation becomes a key tool, and offering solid suggestions on how to negotiate favorable terms in real estate transactions is essential. Count on our team to guide you on the best path, it is your money that is at stake, and that of the buyers of your home... Something to definitely take into account.