Euribor

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The euribor (European Interbank Offered Rate) is the benchmark index of interest rates that´s published daily that indicates the average rate interest at which financial entities and banks lend each other money in the euro’s interbank market. It is calculated using the data from the main banks that operate in Europe (eurozone), and its monthly value is used often as a benchmark for bank loans. Also known as the euribor lending rate.

The euribor is to the eurozone what the libor (London Interbank Offered Rate) is to the UK. The European Interbank Offered Rate is a rate interest whose function is to “tax” loans that banking institutions give each other in the euro zone. The entities lend money to each other every day (or at least until Lehman Brothers’ bankruptcy they did) to guarantee everyone’s solvency at all times in the system. The loans between banks are returned with an interest equivalent to euribor plus an amount added called the risk premium. Euribor is not a fixed interest rate; it changes daily. This depends on the trust that the banks have with their business partners. It is calculated throughout its simple arithmetic mean of the rate interest at which the main 60 European banks lend each other money . These prices are published daily by the European Banking Federation (EBF). At user level, since the euro was adopted as a single currency in a large part of the European territory, the index euribor started to be used as the main reference that banking entities use to calculate the rate interest that they apply to their mortgage loans. Normally, the rate of interest of a mortgage is calculated applying six-month or yearly euribor adding a differential (from 0 to 1.5) depending on the client’s economic profile or its ability to negotiate. Concurring with the annual or bi-annual references, the interest rate is revised, applying to it the newly calculated euribor. If it is higher than the one we had before, mortgage payments will be more expensive. If, on the contrary, the euribor drops, the payments will decrease.

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