Many mortgages in Spain are linked to the EURIBOR rate. It is a quite common misunderstanding that the EURIBOR is decided by the European Central Bank (ECB), but that is not the case. It is therefore vital for people with mortgages to understand what EURIBOR is to have a better idea of what can make the interest rate of mortgages to change.
The EURIBOR is a daily reference rate, calculated and published by the European Money Markets Institute (EMMI), that is based on the averaged interest rates at which Eurozone banks offer to lend unsecured funds to other banks in the euro interbank market. A selection of banks in the Eurozone provide with their interbank rate for the EURIBOR to be calculated. These banks are called the Panel Banks.
The Benchmark Determination Methodology for EURIBOR® (BDM) relies on contributions from a panel of banks (‘Panel Banks’ or ‘Contributing Banks’), which are active participants in the euro money market. These contributors have been selected to ensure that the diversity of the euro money market is adequately reflected, thereby making EURIBOR® an efficient and representative benchmark.
There are several EURIBOR rates calculated with different time span (1 week, 1 month, 3 months, 6 months, and 12 months). The different EURIBOR rates are published daily on every TARGET day, at or shortly after 11 a.m. CET.
Since EURIBOR is reflecting the inter bank rates, then it is important to understand that the interbank rates can increase a lot in financial crises when the risk to borrow in between banks is staggering. Even if the central banks are taking actions to support the interbank lending, the EURIBOR rates are likely to increase quite a bit during financial crises.