Euribor and a mortgage

Euribor is the interest rate at which a large number of European banks do provide short term loans to one another. Banks which borrow money from other banks can use these funds to provide loans to other parties. In fact, Euribor is the purchase price a bank does have to pay for a short term loan.

Many banks do lend money by providing mortgages. In many European countries the interest rate which has to be paid for a short term loan or mortgage (short term fixed interest rate period) does follow the Euribor-rate. Once the Euribor-rate increases, the interest which has to be paid increases as well and vice versa. When someone decides to opt in for a mortgage based upon an adjustable interest rate (also know as a floating rate or variable rate mortgage), it is announced beforehand that he or she will pay the Euribor-rate (often the Euribor 1 month or 3 month rate) plus a fixed commission, for example Euribor +1%.

In countries outside the Eurozone, like the United States and Great Britain, not the Euribor but the LIBOR interest rates are being monitored as the key base rate.

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