An adjustable-rate loan is a loan indexed to a rate of interest which, instead of a fixed rate may vary during the life of the loan, depending on the conditions of the financial markets .
It should not be confused with fixed-rate and fixed-term loans , which refers to a method of depreciation of specific capital, aimed at increasing or decreasing the duration to allow a fixed maturity, up to a certain level of interest rate. .
Different adjustable rate
Many revisable rates exist.
Some are very commonly used by banks, such as money rates on an Eonia basis ( T4M , TAG , TAM , etc.) or all Euribor rates , and mainly those at 3 months, 6 months or a year. And for good reason, these indexes are easily usable by banks, since they are reference rates of the European interbank market .
The French State borrows him sometimes on inflation index (one speaks then of OATi ).
As for social housing organizations , the latter mainly borrow on Livret A index .
Any index, even structured or exotic, can serve as a basis for the revision of a loan. Nothing prevents a company to borrow on a representative index of the price of sugar for example, provided of course to find a counterpart to do so …
Consequences of a change in rates
During a change in the interest rate, the amortization schedule of the loan is recalculated. This change will result, according to the terms of the loan agreement, of:
- Increase or decrease the deadline
- Increase or decrease the remaining term of the loan
Ceiling and Revision Floor
For the purpose of securing credit, banks can accompany the loan with an option structure called a cap , allowing for a capping of loan maturities. In order to reduce the cost of such a structure, the integration of a floor is often considered. The combination of both is called tunnel or collar .
About 85% of Spanish mortgages are of variable type in 2001. In other countries, such as France and Germany , less than 20% of loans are at variable rates in the same year 2001 1 . This makes the Spanish market particularly sensitive to changes in the interest rates of the European Central Bank .
In Spain, the one-year Euribor is the most widely used index for indexing the interest rate. To a lesser extent, the PHAI indicator is used.
In Spain, 93.2% of indebted families for real estate purchases are at variable rates. With a rate of 3.539% in July 2006, an average loan of 120,000 euros over 20 years from € 651 monthly to € 736, or over the year, a surplus of € 1,020.
- ↑ (source: The Economist , October 16, 2003)