When looking for financing to buy a home, experts recommend that your mortgage payment should not exceed 30% to 40% of your income. In the case of variable-rate mortgages, it is crucial to consider how these payments may fluctuate over time, since the Euribor , the main reference index for many mortgages, is constantly changing .
The Euribor (Euro Interbank Offered Rate) reflects the interest rate at which European banks lend money to each other. This index, used in most variable mortgages in Spain, is calculated from daily estimates by financial institutions on interbank interest rates. Although the calculation is precise, the truth is that the Euribor can be daily, monthly, annual, etc., depending on the term to which the interbank loan refers.
When you take out a variable rate mortgage, the interest payable is made up of the Euribor plus a fixed differential agreed with the bank. This means that if the Euribor rises, so will your mortgage payment, and the opposite happens if the index falls. The mortgage is recalculated periodically, generally every year, using the value of the Euribor at that time as a reference.
Although it is impossible to predict the future of the Euribor, its evolution is influenced by factors such as the economic situation in Europe, the solvency of banks and the interest rates set by the European Central Bank. For example, when interest rates rise, the Euribor usually follows suit.
Impact on mortgages
If you have a variable rate mortgage and the Euribor rises, you should be prepared for a possible increase in your monthly payment. To estimate, if you signed a 120,000 euro mortgage for 30 years with the Euribor at -0.384% plus a 2% spread, your payment would be approximately 508.6 euros. However, if the Euribor returned to 2008 levels, when it was around 5.393%, your monthly payment could increase to 891.2 euros, which would mean 382.6 euros more per month.
Ultimately, the relationship between the Euribor and your mortgage can be unpredictable and create uncertainty, leading many people to consider fixed-rate mortgages, where the instalment remains unchanged throughout the life of the loan, thus eliminating the worry of fluctuations in the Euribor.
Which option is best for you?
There is no single answer when choosing between a fixed or variable mortgage. Each option has its advantages depending on personal and economic circumstances. The important thing is to carefully analyse the alternatives and consider factors such as the evolution of the Euribor, your ability to adapt to possible changes in the instalments and the duration of the mortgage.
For those who prefer to avoid uncertainty, a fixed-rate mortgage may be the best option. However, if you are comfortable with the assumption that the Euribor can go up or down, a variable-rate mortgage could benefit you in times of low interest rates.