Euribor and variable-rate mortgages: what changes at each review

In Spain and in much of the euro area, a large share of home loans has a variable rate: the rate you pay is a reference index plus a fixed margin, and the payment is recalculated when the rate is reviewed. The index most used for mortgages in Spain is the 12-month Euribor, which the Banco de España publishes every month. This guide explains how the rate is built, what happens at a review and how to test whether your budget can take a rise. The calculators work with fixed rates, so the way to see the effect of a variable rate is to run scenarios, and that is what the example below does.

How the rate is built

A variable rate has two parts. The index, usually the Euribor, moves with the market. The spread, the margin the lender adds, is fixed by the contract. A mortgage at "Euribor plus 1%" pays 3% when the Euribor is 2% and 4% when it is 3%. The Euribor is a reference rate for euro interbank lending, published by the European Money Markets Institute, and EURIBOR® is its registered trademark, as the legal notice says.

What happens at a review

The contract sets how often the rate is reviewed, commonly every six or twelve months. On each review date the lender takes the balance you still owe, the months that remain and the new rate, and recalculates the payment so that the loan still ends on the original date. The payment stays the same until the next review. A rise in the index therefore does not change the loan at once: it changes the payment from the next review on.

An example with numbers

A mortgage of € 150,000.00 over 25 years, starting at 3% a year, for instance a Euribor of 2% plus a spread of 1%. The first payment is € 711.32. After 12 payments the balance is € 145,908.19, with 288 months to go. At the first review the index has moved:

A one-point rise adds € 77.59 to every payment until the next review, and two points add € 159.60. The effect repeats at each review, and the new payment is always calculated on a balance that has fallen a little.

How to test your budget

Do not ask only whether you can pay the first installment. Ask whether you could pay it with the rate two points higher. In the comparison you can enter the same loan at several rates side by side. For € 150,000.00 over 25 years, the payment is € 711.32 at 3%, € 791.76 at 4% and € 876.89 at 5%, and the total interest is € 63,394.69, € 87,525.43 and € 113,064.14. These runs keep each rate for the whole loan, so they show the order of magnitude, while the table above follows the mechanism of a review.

Where to find the index

The Banco de España publishes the official monthly Euribor, and its bank customer portal (opens in a new tab) has information on mortgages, the Euribor and calculators for the APR. A note on the data in Finasst: the investment comparison uses the 3-month Euribor from the European Central Bank's data portal. Mortgages usually follow the 12-month one, so that figure is not a forecast of your payment.

What to check in the contract

• Which index the rate follows and for how many months (3, 6 or 12).
• The spread, and whether it is fixed for the whole life of the loan or changes with conditions.
• How often the rate is reviewed and on which date.
• Whether there is a ceiling for the rate. A floor is not allowed on mortgages signed in Spain under Law 5/2019; in other countries, check.
• Whether you can change to a fixed rate later, and what it costs. In Spain, Law 5/2019 caps the fee for that switch at 0.15% of the balance in the first three years and does not allow any fee after that.

Mistakes to avoid

• Comparing only the first payment of a variable and a fixed offer. The variable one is valid until the first review.
• Looking at the index and forgetting the spread, which stays whatever the index does.
• Treating the APR as a forecast. For a variable rate, it typically assumes the rate stays where it started.
• Assuming today's index will last. Nobody knows what it will be at the next review.