Have you considered buying a home, but you don't quite understand what the Euribor is and how it will affect you when applying for a mortgage? Today, on the Aliseda blog, we explain what this index is and how it can affect your wallet if you're thinking of buying a home.
What is the Euribor and why should it matter to you?
We could say that the Euribor is the thermometer of the European financial market. It is an interest rate that measures how much some European banks charge each other for lending money, and it is published daily by the European Banking Federation.
This figure changes almost every day and has a direct impact on variable-rate mortgages in Spain, where the interest rate is periodically reviewed (usually every year) and adjusted based on the Euribor. This translates to, if the Euribor goes up, your mortgage could become more expensive, and if it goes down, the monthly payments on your mortgage could be cheaper.
How is the Euribor calculated?
To understand how much your mortgage costs you, you only need to add two things: the Euribor, which as we said is the rate that banks charge each other and changes over time, and the differential, which is an extra that your bank charges you.
Let's say, for example, that the Euribor is 1% and your bank charges you a 1.5% differential. Then, the interest on your mortgage would be 2.5%. This means that if you have a mortgage of 100,000 euros, you would pay about 2,500 euros in interest per year.
The impact of the Euribor on your wallet
Now that you know what the Euribor is and how it is calculated, let's see how it directly affects you, as knowing its peculiarities will allow you to negotiate better conditions for your mortgage and find the most suitable offer.
• Variation in monthly payments: If you have or are considering having a variable-rate mortgage, the Euribor will be like that series you can't stop watching. As we said, the ups and downs of the Euribor may mark future revisions of your mortgage, and it will be interesting to keep an eye on its evolution.
• Buying time: If the Euribor is low, it may be a good time to buy a home with a variable-rate mortgage, as the installments could be more affordable.
• The art of negotiation: Knowing the Euribor can help you negotiate better conditions on your mortgage, especially on the extra amount added to the Euribor to set the interest you will pay (differential).
Strategies you should consider
So that the Euribor doesn't have you on an emotional roller coaster, we give you some advice:
• Fixed-rate mortgages: If you don't want to keep track of frequent changes in the Euribor, a fixed-rate mortgage may be your best ally. Its installments will be exempt from Euribor movements.
• Negotiate, negotiate, negotiate: Don't settle for the first offer. Knowing the Euribor gives you a basis to negotiate better conditions on your mortgage. Look for the most competitive offers and review the differential.
• Pay a little extra when you can: If the Euribor goes up and you can afford it, paying a little more on your mortgage can save you headaches in the future. This is known as 'early repayment'.
As you can see, the Euribor is much more than a simple economic indicator. Understanding what it is and how it affects mortgages is fundamental and can give you a great advantage when buying a home and managing your mortgage as intelligently as possible.
At Aliseda, we recommend staying informed and seeking professional advice when needed; it will always be your best move when buying your home.
And now that you have everything clearer, it's time to look for your house, consult our website, and find your option.
