Buying a home involves a series of steps and decisions that can sometimes make us a bit dizzy. If you are going to buy a home in Spain and need financing, it is important that you are familiar with this term: Euribor.
Because the good life comes with some calculations.
What is the Euribor and how is it calculated?
Indeed, the Euribor sounds very unappealing. But it is important to know how it works before deciding on one type of mortgage or another. Don’t worry: it is much simpler than it seems. We will try to explain it to you:
When we borrow money from the bank in order to buy a house, the bank must also borrow money to grant the loan. And who lends this money to the bank? That would be other banks in the eurozone. And these banks do not lend the money for free either, so instead they charge an interest. That interest is the Euribor. It is therefore the price of money that is transferred between banks. After all, money is also bought and sold. 😉
The Euribor is calculated every day, using as a reference the interest rates among the most important banks in the EU. The European Central Bank is also part of the equation. The interest rate at which it lends money to banks through auctions has a major influence on the calculation of the Euribor. In addition, it can be calculated over a particular period: one week, one month, six months or one year.
How does it affect me if it goes up or down?
If you are going to apply for a mortgage, the Euribor will only affect you directly if you choose a variable interest rate, because the Euribor is one of the indexes used to calculate the interest you will pay on your loan.
In other words, depending on how the Euribor varies, the loan will cost you more or less. If it falls, your monthly mortgage payment will be cheaper. However, if it rises, you will have to pay more for your mortgage.
In an adjustable-rate mortgage, the banks calculate the interest rate as follows:
Interest = Euribor + % spread (percentage spread over the Euribor. For example, 0.5%)
Euribor in 2021
It is important that you understand that forecasts are merely predictions, and that there is no guarantee that they will come true. So, if you are thinking of applying for an adjustable-rate mortgage, bear in mind that the Euribor could start going up and make your mortgage more expensive. The choice of this type of mortgage will be up to you and your ability to accept the financial risk.
To illustrate this, just a quick reminder: the coronavirus pandemic came unexpectedly and is clearly having an effect on the Euribor, which is at an all-time low, something we could not have anticipated.
So, taking it with a grain of salt, experts such as Bankinter’s Analysis Department, indicate that the Euribor will remain in negative numbers, at around -0.45% in 2021 and -0.42% in 2022. In El Confidencial, Simone Colombelli, Director of Mortgages at iAhorro, states that the index will stabilise in 2021 and will not fall as sharply as in 2020, although it will remain in negative territory.
With this in mind, we hope you can find the home of your dreams! If you need more advice on buying a home, you can check this section of our blog. At Sonneil we accompany you throughout the process, so that there are fewer uncertainties.