What is the Euribor?
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1: What is the Euribor?
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What is the Euribor?
Euribor is an abbreviation for Euro Interbank Offered Rate. It is an agreed reference rate used across the Eurozone for various kinds of financial products, including mortgages and is the rate most frequently used in Spain when calculating mortgages.
It is often referred to as ‘the’ Euribor but in fact there are fifteen Euribor rates, all at different levels of maturity ranging from one to two weeks up to twelve months.
Why does it matter?
Euribor rates are important because in many European countries they determine the levels of interest and/or return on a number of financial products, including:
• Interest rate swaps
• Interest rate futures
• Savings accounts
• Mortgages
Of course, it’s these last two (and especially the impact on mortgages) that will be of interest to most people – a standard variable rate mortgage is usually based on one of the Euribor rates plus a percentage on top (e.g. the one-month or three-month Euribor + 1%).
How is the Euribor calculated?
The calculation of the Euribor is based on agreements between more than 5,000 European banks. Put simply, the interest rates at which the panels of various key banks borrow between themselves determine the Euribor. Other influencing factors include supply and demand, economic growth, and inflation.
Euribor rates are officially quoted at 11:00 am CET on each working day.
A little history
Euribor first came into effect on 30 December 1998 – the day before the Euro single currency was launched – and replaced similar national rates such as the PIBOR in France and FIBOR in Germany.
Euribor and LIBOR
To avoid confusion, it’s worth mentioning the difference between Euribor and LIBOR.
As stated above, Euribor is the average interbank interest rate at which European banks are prepared to lend to one another. The LIBOR is the average interbank interest rate at which a selection of banks on the London money market are prepared to lend to one another.
The main difference is that while Euribor rates apply solely to the Euro, LIBOR rates are applied to ten different currencies.
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