Euro Zone Mortgages and 3 Month Euribor Record!

3 Month Euribor rate at an all time low!

Last Tuesday, the 14th July 2009, the three-month Euribor bank-to-bank euro lending rate fell to a new record low, breaking through the 1% barrier for the first time ever.

This has a substantial impact on the cost of borrowing in popular destinations such as Spain and Portugal.

Portuguese and Spanish banks generally base borrowing on the “three month Euribor rate” which in turn is underpinned by the prevailing European central bank base rate. The three month Euribor rate is currently at 0.97% at the current time

The bank will then allocate a spread of anywhere between 0.4% to 1% on top of the Euribor rate for the duration of the mortgage, depending on the loan amount and the “loan to value” ratio.

What is a "spread" you might ask. The spread is the mark up the bank give you on top of Euribor. So a spread of 1% means, if Euribor is at 1%, your mortgage payments will be 2%.

To give an example of how the decline of the 3 month Euribor rate has impacted mortgage costs in Spain and Portugal, following is a comparative simulation based on borrowing Euro 200,000.00 in July 2008 against July 2009 on an interest only basis:-

In July 2008 with the 3 month Euribor at 4.25% plus the bank spread of 0.7% equals a total of 4.95%. Therefore, for a loan of Euro 200,000.00 at 4.95% this would equate to a monthly interest payment of Euro 825.00

In July 2009 with the 3 month Euribor at 1.00% plus the bank spread of 0.7% equals 1.7%. Therefore, for a loan amount of Euro 200,000.00 at 1.7% this would equate to a monthly interest payment sum of Euro 283.00

This comparison clearly shows an incredible saving of the same mortgage facility of Euro 542.00 per month!

What are you waiting for???