The adjustable rate loan based on the 3-month Euro Lend index is now being increasingly offered by the various banking organizations. It must be said that the basic index has never been so low.
What are the risks of a revisable rate based on the Euro Lend 3 months?
The risks of a variable rate on the Euro Lend 3 months is due to the fact that we do not control the evolution of the benchmark index on which it is based.
The different reference indexes
The Euro Lend.
The Euro Lend, also called Tibor means: ” Euro Offered Rate ” or if you prefer Interbank rate offered in euros.
Currently at 0.637%, it is historically low. To give you an idea, it was in March 2009 at 1.324% and in March 2008 at 4,111% is a dramatic fall that has highlighted the interest of this type of loan.
Other financial indices exist but are rarely used as a reference for a mortgage. Let us quote for the principal the Eonia and the OAT.
The security “locks” of a revisable Euro Lend rate at 3 months
The law recently requires lenders to support their proposal in variable rate with a rate-controllable offer, ie with a secure offer. This can be a fixed rate loan or a rate-adjustable loan with a cap on the monthly payment. The capped loan then allows you to control your budget knowing in advance that it will be the maximum deadline.
If you opt for a revisable rate based on the Euro Lend 3 months , know first of all that the downside is very limited. Only opt for this type of loan if, on the one hand, the difference with a fixed rate is important and, on the other hand, if there are security mechanisms. Either with a cap on the monthly payment, or with a fixed deadline. In the latter case, it is the duration that is lengthened.