Luminor: Euribor shows a slight upward trend

TALLINN - While the long-standing high Euribor rate fell to a somewhat lower level last year, a slight upward trend is now noticeable again, according to Luminor.

According to Helina Kikas, head of home loans at Luminor, changes in interest rates affect both existing mortgage holders and those planning to take out a new loan.

Last year, the European Central Bank's forecasts were awaited with great interest. It was initially thought that Euribor might fall to around 1.6 percent, but during the year, expectations were revised upwards, with the forecast rising to 1.8 and then to 1.9 percent. "This means that the base interest rate was not lowered in the first half of the year, leading to an expectation that it might happen in the autumn. This uncertainty created confusion in the market and led many to wonder if Euribor could, in fact, start rising again in the long term," Kikas explained.

The complex economic situation and global events at the start of the year have indeed pushed Euribor back on an upward trend. In March, Euribor jumped to 2.6 percent, but this level has since stabilized. "Looking at a longer period, this suggests a calmer market phase. Furthermore, the risk associated with Euribor-linked products, such as home loans, is not expected to increase significantly in the near future. The European Central Bank's long-term forecasts also do not indicate that Euribor will return to the very high levels seen a couple of years ago in the coming years," Kikas noted.

Neither current homeowners nor new loan applicants have reason to be overly concerned about small fluctuations. "Typically, when granting a loan, banks also assess whether a person could service the loan in a scenario where the total interest rate reaches about six percent, meaning a Euribor of around four percent," she said.

Since Euribor fluctuations have become normal, it is worth considering this when planning finances. "As a practical solution, it is beneficial to have one's income deposited into the same bank account from which the monthly loan payment is made. This makes it easier to avoid situations where monthly limits need to be changed frequently or the exact amount for the loan payment is not available in the account," explained Luminor's head of home loans.

If the potential fluctuation in loan payments still creates uncertainty, banks also offer the option to fix the interest rate for a specific period. "However, it must be noted that a fixed interest rate is generally not the same as the current Euribor rate but slightly higher to cover the risk of larger fluctuations during the fixed period. For many borrowers, this nevertheless provides greater peace of mind, as it helps avoid unexpected costs arising from changes in Euribor," Kikas added.