Euribor (reference rate)
The interbank offered rate for the euro zone, calculated daily from bank-to-bank lending quotes, serving as the reference index for variable-rate home loans in France. Euribor 3-month and Euribor 12-month are the most used maturities. The instalment of a capped Euribor-indexed loan varies at each reset date according to the spread between Euribor and the agreed bank margin.
Key points
- Euribor is published daily for several maturities (one week to twelve months).
- The 3-month and 12-month maturities are most commonly used in French mortgage loans.
- The client rate equals the chosen Euribor maturity plus the fixed bank spread.
- A rise in Euribor increases the instalment on a variable loan, up to the cap.
Frequently asked questions
How does Euribor affect the monthly instalment of a variable-rate loan in practice?
At each reset date (quarterly or annual, depending on the contract), the bank recalculates the rate by replacing the old Euribor value with the new one. If Euribor rises by 0.5%, the loan rate rises by the same amount, resulting in a higher monthly payment or, on some contracts, an extension of the remaining term.
What is the difference between 3-month and 12-month Euribor for a borrower?
Euribor 3-month reacts more quickly to short-term monetary policy decisions and can fluctuate more over a year. Euribor 12-month is smoother and instalment resets are less frequent. For a borrower wanting more predictability, Euribor 12-month with a cap is often preferable.
Why does the bank spread remain fixed while Euribor fluctuates?
The spread represents the commercial margin and risk cost the bank assessed at origination. It is set contractually at loan signing and cannot be changed unilaterally. This is precisely what the broker negotiates downward when benchmarking banks against each other to improve the client's final rate.
In practice
A variable-rate loan is indexed to Euribor 12-month plus a spread of 1.20%. If Euribor 12-month stands at 2.80%, the nominal rate applied at the next reset will be 4.00%, subject to the contractual cap.
Official sources
- About Euribor · EMMI
- The annual percentage rate (APRC) · Service-Public.gouv.fr
- Mortgage credit (official guide) · Service-Public.gouv.fr