The drop in the three-month Euribor gives housing debtors something to eat

Three On Friday, the one-month euribor fell below the new limit again. The interest rate dropped to 2.683 percent, while on Thursday, December 19, it was over 2.8 percent. At the same time, the one-year euribor was practically unchanged.

The drop in the three-month Euribor is small, but signals the development of the interest rate market.

The difference between interest rates has now shrunk to its smallest since the end of July. The timing is so crucial that even at that time the one-year euribor fell like a stone, driven by the interest rate cut expectations of the European Central Bank (ECB).

Now its plunge has stopped and the speed has changed to safe plowing. The market expects that the euribor for the year will decrease by only about 0.2 percentage points from the current level by the end of June.

At the same time, the faster little sister of the longer euribor, the three-month euribor, has received a turbo-assisted kick sled. The three-month Euribor was still at over three percent at the end of November, but now the market expects it to sink below the one-year Euribor as early as March-April. At the end of June, the interest rate should have already dropped to around two percent. Then the three-month Euribor should already be a good 0.2 percentage points lower than the one-year Euribor.

The advantage of a shorter interest rate compared to a longer one is that during falling interest rates, the interest paid is revised downwards more frequently.

If the mortgage interest rate review is due in the near future, it is worth considering whether changing to a shorter interest rate would be a profitable choice in your case. For example, OP Group, Finland’s largest mortgage lender, charges a fee of 200 euros per loan for switching the reference interest rate, but switching can still be profitable, especially for larger loans.

Read more: You should be careful when choosing an interest rate – the right choice can bring a juicy savings

Same of course, the logic also applies to new mortgages. Until now, the three-month euribor has been a kind of hipster rate, meaning that only a few have chosen it. For example, in the case of new mortgages, the popularity of the three-month Euribor between 2019 and 2024 was at its highest in November 2023, when about 35 percent of new mortgages were tied to it. The most recent data is from October this year, when the share was just under 13 percent.

The low popularity of the three-month Euribor has recently been understandable to the extent that the interest rate has been continuously higher than the one-year Euribor since the end of November 2023. However, the situation is a historical exception.

Euribor quotations from the beginning of 1999 can be found on the website of the Bank of Finland. During that time, the three-month Euribor has been lower than the one-year Euribor in almost 86 percent of daily quotations. In the long term, the short interest rate has been on average about 0.24 percentage points lower than the annual Euribor.

It’s already such a significant difference that you probably won’t have the same effect even with a successful tender for the loan margin.