In recent months, much has been said about the Euribor increase, inflation, etc… But do you know what it is about? What is the Euribor rate, and how does it affect home loans? How does all this work? Do banks make more money by increasing the monthly loan payment installment?
EURIBOR: What is it, and what is its impact?
Therefore, it is very likely that you are tired of hearing about Euribor, but it is also highly likely that you have no idea what it is, how it works, and how it can influence your life if you have, or want to take out, a loan housing.
Well, the EURIBOR (Euro Interbank Offered Rate) is a rate created in 1999, before the launch of the single European currency (Euro), which is based on the average interest rates charged on short-term loans, made between a panel of European banks. It has a strong impact on those who have a variable rate housing loan.
In case you didn’t know, your calculation is done on a daily basis, and varies depending on a period, that is, 1 week, 1 month, 3 months, 6 months, or 1 year. Normally, in our market, the EURIBOR is applied to 6 months or 12 months. It is also worth noting that the vast majority of home loans in Portugal are based on a variable rate.)
In addition to all this, when a home loan (credit) is made with a variable rate, this rate is calculated by combining the Spread (which is the bank’s profit margin, and which depends on the risk on the part of the customer), with the EURIBOR. That is, the interest rate you pay every month depends on these two factors, one fixed and negotiable (spread) and the other variable (euribor).
What is the impact on the monthly installment?
Well, if the EURIBOR goes down, the monthly fee goes down, however, if the EURIBOR goes up, the monthly fee goes up. That’s why we’re seeing a lot of talk around EURIBOR. In case you didn’t know, this rate was in negative numbers until the first months of 2022.
However, with the increase of money in the market, the European Central Bank was forced to increase interest rates, which of course also resulted in an increase in the EURIBOR. (It is the mission of central banks to control the money available in a given market. Because with more money available, it is normal for the price of products and services to increase. The so-called inflation.)
First of all, what do you think about all this? Interesting? Did you get the doubts dispelled? Share your opinion with us in the comments box below.
