Six-month Euribor climbs above three percent: what it means for your mortgage payment

What exactly happened and why Euribor rose

According to ERR, the six-month Euribor climbed to 3.013 percent. This level was last seen on 18 October 2024, meaning Euribor had been lower in the meantime.

The rise follows the European Central Bank Governing Council's decision on 10 September to raise its three key interest rates by 25 basis points, effective from 16 September. Increases in these key rates gradually feed through to money market rates, including Euribor, which underpins most Estonian mortgages and leases.

How a change in Euribor reaches your monthly payment

It is important to understand that a rise in Euribor does not immediately change anyone's monthly payment. The interest rate on a variable-rate loan consists of the six-month Euribor plus the bank's margin, but the new Euribor level only feeds into the loan payment on the rate review date set out in the loan agreement, which is usually every six months.

This means that if a loan's rate was last reviewed in spring, for example, the next review will likely happen in autumn or winter, and only then will the new, higher Euribor show up in the monthly payment. Until that point, the payment stays the same, even if Euribor has already risen in the meantime.

Example: how a rate increase affects a mortgage payment

To understand what a rate increase means in monetary terms, it helps to look at a concrete example. Suppose someone has a mortgage of 50,000 euros with a 25-year term.

At an interest rate of 4.0 percent, the monthly payment is 263.92 euros, and the total interest paid over the entire loan term comes to 29,175.53 euros. If the rate rises to 4.5 percent, the monthly payment increases to 277.92 euros, and the total interest paid rises to 33,374.87 euros.

The difference in the monthly payment is therefore 277.92 - 263.92 = 14.00 euros per month, but over the full loan term the total interest paid grows by 33,374.87 - 29,175.53 = 4,199.34 euros. This shows that even a seemingly small increase of half a percentage point can add up to thousands of euros in extra cost over a long loan term.

For your own loan, you can calculate the exact monthly payment and total interest using a mortgage calculator or a loan calculator by entering your loan amount, interest rate, and term.

What this means for lease holders

A similar logic applies to car leases, where the interest rate is often also tied to the six-month Euribor. If Euribor rises and the lease's rate review date arrives, the lease payment increases as well.

You can check how your lease payment and interest rate affect each other using a lease calculator, which takes into account the lease amount, interest rate, and term.

What borrowers can do right now

Although borrowers cannot influence the level of Euribor themselves, it is worth knowing when the next rate review date falls under their loan agreement, since that is the point from which the new Euribor level will start affecting the monthly payment.

It is useful to calculate in advance, before the review date, what the monthly payment might look like at different interest rate levels, so as to be financially prepared for a possible increase. A mortgage calculator is well suited for this, letting you enter both the current and a higher interest rate to compare the results.

• Check your loan agreement to find out when the next rate review will take place
• Use a mortgage calculator to work out the monthly payment at both the current and a higher interest rate
• For leases, use a lease calculator to estimate a possible increase in payments
• For longer loan terms, look not only at the monthly payment but also at the total amount of interest paid