Reference index (variable rate)
A variable-rate reference index is the external benchmark to which a revisable mortgage rate is tied. Any movement in the index triggers a periodic revision of the contractual rate under the terms set out in the loan offer. In France, 3-month Euribor remains the dominant benchmark for adjustable-rate mortgages.
Key points
- 3-month Euribor is the most widely used benchmark for adjustable-rate mortgages in France.
- The revised rate = reference index at the revision date + the bank's fixed spread.
- Loan agreements typically include caps (ceilings and floors) limiting the maximum rate movement.
- Revision frequency (quarterly, annual) is contractual and cannot be changed unilaterally.
- Borrowers may be able to choose between revising the payment amount or the loan term, depending on contract clauses.
Frequently asked questions
How is the new rate calculated at a revision date?
At each contractual revision date, the bank reads the reference index value (e.g., the previous day's 3-month Euribor) and adds the contractual spread. If 3-month Euribor is at 2.80% and the spread is +1.10%, the new rate will be 3.90%. This calculation is mechanical and enforceable against the bank.
What is a rate cap and how does it protect the borrower?
A cap is a contractual ceiling on how much the revised rate can move above the initial rate. A ±2 cap means the rate can neither exceed nor fall more than 2 points from the original rate, regardless of index movements. This mechanism limits the borrower's upside risk but also caps the benefit of a sharp rate decline.
Why choose a variable rate over a fixed rate in a high-rate environment?
In a high-rate environment, variable rates are typically offered with a lower initial spread than fixed rates, resulting in lower starting payments. If ECB policy rates subsequently fall — which feeds through to Euribor — the borrower automatically benefits without needing to refinance. This scenario carries residual risk, however, if rates rise again.
In practice
A client takes out a variable-rate loan at Euribor 3m + 0.90%, with a ±1.5-point cap and annual revisions. At signing, Euribor is 2.50%, giving an initial rate of 3.40%. A year later Euribor rises to 3.20%: her rate moves to 4.10%, still well below the 4.90% ceiling (3.40% + 1.50%). The broker had walked her through this scenario during the initial simulation.
Official sources
- Getting a mortgage (reference index) · Service-Public.gouv.fr
- The annual percentage rate (APRC) · Service-Public.gouv.fr
- Mortgage credit (official guide) · Service-Public.gouv.fr