Interest rates on mortgages

Interest is the money you pay the bank in return for borrowing. You pay a percentage of the amount you borrowed — and that percentage is called the interest rate.

The number you see (e.g. 3% or 4%) describes how the bank prices the risk it takes on with you. Put simply: the rate is a mirror of risk. The lower the risk (strong collateral), the lower the rate.

The bank sets it, but it is always influenced by the base rate of the European Central Bank (ECB) or an index such as Euribor. Euribor reflects market expectations and changes daily; the bank observes it on a specific date each month to determine your instalment.

On top of the index (monthly, quarterly, etc.) the bank adds its profit margin (spread), which varies by case and by borrower profile. The special tax required by law is also added, and the sum gives the final rate. By law, mortgage rates are always linked to an index.