IRPH stands for "Índice de Referencia de Préstamos Hipotecarios", which translates to Mortgage Loan Reference Index. It’s an official interest rate used in Spain as an alternative to the more well-known Euribor. According to the National Institute of Statistics (INE), 91.3% of mortgages issued in June in our country used a variable interest rate . This means that most of the mortgages issued were linked to a reference index . But what exactly is the reference index? What indexes are used in the market and how do they differ?
If you have decided to buy your first home and you are comparing the different types of mortgages offered on the market, you have probably found that most variable rate mortgages refer to the reference index . This index is the data that banks and financial institutions use to calculate the interest rates applicable in each revision of our mortgage. It is calculated by adding the value of the index to the margin that we have agreed with the entity when formalizing the mortgage loan.
Currently in our country there are different types of reference indices:
Euribor: Acronym for Euro Interbank Offered Rate. It is the best-known index and is also the most widely used official reference index since 1 January 2000. It is calculated by taking the arithmetic average of the daily values published by the European Banking Federation for one-year euro deposit transactions.
IRPH for Entities: Substitute for IRPH Banks and IRPH Savings Banks, it is the average rate for mortgages for more than three years for the purchase of a free home, granted by credit institutions in our country.
Mortgage IRS: Used since April 2012. It stands for five-year Interest Rate Swap. It is an interest rate calculated by crossing future interest rate transactions between economic agents.
What is the most common benchmark?
As we said at the beginning of the post, the Euribor is the index most used by all banking entities in Spain. Broadly speaking, it indicates the average interest rate at which financial entities in the European Union lend money to other entities in the Eurozone. It is calculated using data from the main banks operating in Europe and is only applied to those banks in the Member States that form part of the Eurozone.
When we study the type of mortgage that best suits our personal and economic characteristics, we must bear in mind that, at present, the interest rate on variable mortgages is low because the Euribor is registering historic lows. Throughout the year, each month has registered a minimum until reaching August, when it was at 0.161 % . Despite this, it is important (to know how high our interest rate can go) to take into account the highest level that the reference rate has registered. This way we can get an idea of how high the interest rate can grow. In the case of the Euribor, the historic maximum was registered in 2008 when it reached a value of 5.4%.