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Monday, November 30, 2015 11:01 PM

Euribor Hits Record Low in First Ever Dip Below 0.10%; Negative Mortgage Rates Increasingly in Play

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Via translation from La Vanguardia, Euribor at Historic Lows, Mortgage Interest Drops by €166 Per Year.

The 12-month Euribor, on which most Spanish mortgages are based, closed the month of November at 0.079%, setting a new record low and falling for the first time below 0.1%.

The monthly closing represents a decline of 0.256 percentage points since November last year.

A citizen with a mortgage of 120,000 euros will get a will save almost 14 euros per month, 166 euros per year.

XTB analyst Jaime Díez explained to Europa Press that the index has experienced a 50% drop since the beginning of the month based on "fruit of the proximity of the next meeting of the European Central Bank" to be held this Thursday by president Mario Draghi.
Negative Mortgage Rates Increasingly in Play

Hey, why not a negative Euribor so mortgage holders get money back?

Actually, negative interest rates on mortgages happened in April of this year, just not on 12-month Euribor.


The above table on Euribor Rates.

Anyone with a mortgage rate tied to 6-month Euribor or less now gets paid to have a mortgage. In Spain, most mortgages are tied to 1-year Euribor.


Reader Allen, president of a mortgage company pinged me with a comment that the spread on a typical Spanish 20-year mortgage is Euribor + 1 percentage point.

He is correct. That said, typical does not imply always.

In the US, I had a very unconventional mortgage, now paid off, that was at 1-month Libor rounded to the nearest 0.25 plus a spread of 0.25. Libor briefly spiked in 2007 (anyone recall that?) and I had to calm my wife who was starting to think I was crazy for getting into such a loan. I assured her Bernanke would be cutting rates like mad. Soon thereafter our mortgage rate crashed and was at 0.25% for long periods of time.

In Europe, this year, there were negative rates in at least 3 countries: Denmark, Spain, Portugal.

I commented on negative mortgages on April 15, in "Inconceivable" Negative Interest Rates on Mortgages in Portugal and Spain, with Italy On Deck.

Here is the key paragraph from the Wall Street Journal report I cited:
In Spain, Bankinter has been forced to deduct some clients’ mortgage principal payments because an interest-rate benchmark tied to Switzerland’s currency has dipped into negative territory.

An executive at another Spanish bank said the lender in recent months has started to put in place an interest-rate floor on thousands of short-term business loans that are tied to short-term variations of Euribor. Two-month Euribor, is at minus 0.004%. For new loans, the bank is increasing the cushion it charges customers above Euribor.

Hundreds of thousands of additional loans would be affected if medium-term Euribor rates enter negative territory, the executive said. The six-month rate is currently at 0.078%.

In Portugal, interest rates on most mortgages are linked to a monthly average of three- and six-month Euribor. Both have been steadily sinking and are hovering just above zero.
In January, the Daily Koz reported Negative Interest Rate Mortgages Have Arrived In Denmark.

So even though most mortgages have a cushion, they all don't. And if some Spanish mortgages went negative in April, even more are negative now.

Mike "Mish" Shedlock

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