How to Calculate a Mortgage With Euribor

The Euribor (Euro Interbank Offered Rate) is the interest rate banks in the Eurozone -- the 16 countries that use the euro as their sole currency -- charge each other to borrow money short-term. Banks that make mortgages often use the Euribor as the "index" for their loans. A mortgage index is the base rate stated in an adjustable rate mortgage (ARM). Another rate, called a "margin," is then added to the index to calculate the interest rate at the next adjustment period. Mortgage lenders then notify homeowners of the new rate they will pay 45 to 60 days before the adjustment.

Read your mortgage note to identify the Euribor as your index and learn the date of the next possible interest rate adjustment. Most mortgages "re-price," or adjust, two months before the effective adjustment date. For example, a one-year ARM adjusts annually, but the new rate is calculated 60 days before the adjustment date so the lender can notify you of the new rate. This gives you the chance to refinance to a new mortgage if you wish.

Add the margin -- usually called a "fixed commission" in Europe -- to your index, the Euribor, at your re-pricing date. The margin, expressed as a percentage, remains fixed throughout the loan term. It is the index that often changes. The margin will be stated clearly on the mortgage note. If the 12-month Euribor is 1.50 percent two months before the adjustment date and the margin is 3 percent, the new interest rate for the next year will be 4.5 percent.

Compare your new prospective interest rate to any adjustment or lifetime caps offered by your mortgage. In the U.S., the most common caps -- maximum rate increases -- are 2 percent at each adjustment date and 6 percent over the term of the mortgage. Therefore, any annual rate increase that exceeds 2 percent, when compared to your last rate, will be capped at the maximum. Should the new interest rate calculate at higher than 6 percent above the rate when you first received your loan, the new rate will be capped at the lifetime maximum.


  • Negotiate the lowest margin (fixed commission) and interest rate caps possible to lower future interest rates.

    Follow the Euribor rates regularly to learn if significant increases or decreases in your rate may be coming.


  • Don't confuse the Euribor with the LIBOR (London Interbank Offered Rate), which is used for many mortgages made in the U.S. and the U.K. They are similar but different, since one is based on the Euro currency and the other is based on British pounds and U.S. dollars.