Euribor and other reference interest rates

Reference interest rate is a market rate used by banks for pricing loans such as home or student loans. The reference interest rate is always publicly available for anybody to view. The euro area’s own reference interest rate is the Euribor. OP cooperative banks offer the 3, 6 or 12 month Euribor and OP-Prime as the reference rate, depending on the loan type.

Euribor is the most common reference rate

The Euribor (Euro Interbank Offered Rate) is a reference interest rate in the euro area money market. It is commonly applied to loans and deposits. The rate’s name indicates the period of time during which the borrowing rate remains unchanged: either 3, 6 or 12 months. For example, the interest rate of a loan tied to the 12-month Euribor remains unchanged for 12 months, while a 6-month Euribor loan is adjusted every 6 months from the loan drawdown date.

Euribor rates are quoted daily at 12.00 Finnish time. A new interest period will begin on the interest rate adjustment date. The new total interest rate consists of a margin and the reference interest rate on the interest rate determination date. The interest rate determination date is the banking day before the interest rate adjustment date.

For the latest news on Euribor rates, visit the Bank of Finland website.

Benefits of the 12-month Euribor

The 12-month Euribor is the most popular reference rate for home loans in Finland. Its biggest benefit is its predictability. It is easier to plan your finances when you know what your loan interest will be for the next 12 months.

The 12-month Euribor responds to the rises and falls in interest rates more slowly than short-term interest rates. This means that if interest rates start to rise shortly after the rate adjustment, the 12-month Euribor protects borrowers from higher interest rates for a longer time. On the other hand, borrowers may have to wait longer to benefit from falling interest rates.

Behaviour of shorter-term Euribor rates

The 3-month and 6-month Euribor rates respond to changes in interest rates more quickly than the 12-month Euribor. Like their names suggest, these interest rates are adjusted every three or six months. This means that the loan instalment or the loan term may change every three or six months.

What is OP-Prime?

OP-Prime is a reference rate used by OP cooperative banks. It is affected by general interest rate trends and financial outlook, among other factors. OP-Prime is more stable than the Euribor rates and tracks market interest rates at a steady pace.

OP-Prime does not have a pre-announced adjustment date. Instead, OP Cooperative's Executive Management Team decides on any changes to the rate. When changes are made to OP-Prime, the information will be communicated in the What's new section of the service and with a press release.

This is how an interest rate adjustment affects the loan instalment or loan term

At the time of interest rate adjustment, the instalment amount or the loan term may change. This is due to the change in the reference interest rate. Its effect depends on the loan repayment method you have selected:

  • In the case of variable annuity, the loan instalment may increase or decrease.
  • In the case of equal payment, each instalment stays the same, but the loan term will become longer or shorter.
  • In the case of equal amortisation, the amount of interest added to the repayment may vary, in other words, the instalment may change.

What are reference interest rates and benchmark values?

Reference interest rates include Euribor and Eonia. They are used in credit and financing agreements and account agreements. Other benchmark values comprise various indices that can be used to determine the amount payable under a financial instrument, or the value of a financial instrument. Indices can also be used as benchmark indices for funds.

What kinds of reference interest rates or benchmark values can OP use?

When using reference interest rates and benchmark values, OP takes account of the EU Benchmarks Regulation obligations. If a reference interest rate does not fulfil regulatory requirements, it cannot be used anymore. It has to be switched into another reference interest rate or benchmark value. It is also possible that a reference interest rate or benchmark value ceases to exist or changes significantly. 

What is the EU Benchmarks Regulation?

The purpose of the EU Benchmarks Regulation (2016/1011) is to standardise benchmark regulation in the EU, and thereby promote the orderly functioning of the financial sector. A reliable determination of reference rates and benchmark values is essential in terms of consumer and investor protection. The regulation stipulates the management, information sources and use of benchmark indices (such as reference interest rates).

What will happen if a reference interest rate ceases to exist?

The cessation of a reference interest rate affects the agreement you have entered into with the bank, and in that case the reference interest rate must be switched. If an alternative reference rate has already been determined in the agreement terms and conditions, we will apply that primarily. The agreement terms and conditions may also define other ways to determine a new reference interest rate to replace the ceased one, and in some cases we may use a notification procedure to determine the new reference interest rate. Any changes in widely used reference rates typically involve a transition period, during which we can make the necessary changes. We will inform you of any changes on OP eServices or by post.

How is the bank prepared for changes in benchmark values?

OP has drawn up a business continuity plan concerning benchmark values, in case a reference interest rate or benchmark value used by us ceases to exist or changes significantly. The plan describes our change process concerning benchmark values, and our product-specific measures. Determining an alternative benchmark value requires a justified evaluation of how suitable the value is for replacing a certain benchmark value. It is not possible to report an alternative benchmark value for all benchmark values in every situation. Instead, a more extensive market practice or authority recommendations are required. As part of the determination process, we are actively monitoring international market practices and authority recommendations. When needed, we will update our business continuity plan.