Before talking about what is the euribor, we must give a clear definition of what a type of interest, since both terms are closely related. An interest rate is an index that is taken as a reference to calculate the profitability of savings or the cost of credit.
Now, knowing that the Euribor is an interest rate, we only need to know to which area it applies, and it is to the banking sector. We can say that it is the European interbank offer rate, that is, the price at which banks lend money to each other. In the end, everything is a chain, which is why the bank business also affects your pocket. It is usually taken as reference to one year, and is the type of most used interest for loans in Spain. The mortgages are an example of this.
Índice
Who decides the Euribor?
It is not an index that is defined by someone, but rather by the money situation (the euro in this case). It is obtained by calculating the arithmetic mean of the different interest rates of daily offer of the main entities of the euro zone.
Although this number is not determined by the European Central Bank (ECB), yes it follows one parallel evolution to the official type of the monetary politics of the ECB. It is the European Banking Federation who is in charge of publishing it.
How does the Euribor work?
Applied to the case of a mortgage it is very easy to understand. Imagine that you have asked your bank for a mortgage of 120,000 euros (a common median home price). The repayment term is 24 years approximately. The 96% of the mortgages are set at a rate of variable interest, and among the variables, the 91% uses the euribor as a benchmark.
Taking these data into account, and assuming the differential application of 1 percentage point over the one-year Euribor, the share to pay would be €409.64.
Is hard to try to predict How will this index be in a year? They usually take into account macroeconomic forecasts and trend. Sometimes these two factors contradict each other and that is where the confusion begins.
What should be taken into account is that a tabnormally high or low interest rate is not usually a good symptom, since it is likely that something is wrong (Perhaps because inflation is out of control or because consumption is stopped).
In the following graph you can check the history of the euribor of the last years. In this way you can know what figure this index usually hovers around:
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