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Frequently asked questions about variable mortgage loan interest

European banks long‑term funding rate (EBFMI)

EBFMI is an indicator reflecting the price of a long‑term borrowing of funds on the market. It is calculated by adding a long-term financing margin (FMI) to the Euribor rate that reflects a short‑term borrowing rate. As of January 1, 2018, FMI has been calculated by an international agency ICE Data Indices (up until January 1, 2018 – by Bloomberg) on the basis of the average rate at which about two‑tenths of the European prime banks borrow on the market against their euro‑denominated bond quotes.

EBFMI may vary depending on the situation in the market, i.e., changes in the FMI and Euribor; thus, it can decrease or increase.

NOTE! New loans are not issued with this interest base.

Examples of possible changes in the EBFMI

The table below includes examples demonstrating the effect of changes in the EBFMI components, i.e. FMI and Euribor, upon the EBFMI rate and a loan installment. The changes in the rates as shown below are examples only and should be not considered as the bank's forecast for changes in the indicators (FMI, Euribor or EBFMI), as their rates depend on the situation in the market, which may cause larger or smaller changes than shown in the example. We calculated the change in the loan installment assuming that the outstanding loan is 28,962 Eur, and the loan is repaid according to the linear method.
 

Description of the change in the indicator Change in FMI Change in Euribor Change in EBFMI Change in the loan installment
FMI increases, Euribor remains unchanged Increases by 1% Does not change Increases by 1% Increases by ~ 24 Eur/month
FMI decreases, Euribor remains unchanged Decreases by 1% Does not change Decreases by 1% Decreases by ~ 24 Eur/month
Euribor increases, FMI remains unchanged Does not change Increases by 1% Increases by 1% Increases by ~ 24 Eur/month
Euribor decreases, FMI remains unchanged Does not change Decreases by 1% Decreases by 1% Decreases by ~ 24 Eur/month
Both FMI and Euribor increase Increases by 1% Increases by 1% Increases by 2% Increases by ~ 48 Eur/month
Both FMI and Euribor decrease Decreases by 1% Decreases by 1% Decreases by 2% Decreases by ~ 48 Eur/month
Euribor increases, FMI decreases Decreases by 1% Increases by 1% Does not change Does not change
Euribor decreases, FMI increases Increases by 1% Decreases by 1% Does not change Does not change

 
Note: the table shows only some of the possible change scenarios, while the changes in the FMI and Euribor other than shown in the example may lead to different movement of the EBFMI and the loan installments.

European banks funding rate (EBFMI)

EBFMI EUR 3M
EBFMI EUR 6M
EBFMI EUR 12M

Frequently asked questions about variable mortgage loan interest

The mortgage loan variable interest rate is linked to the long-term borrowing price. What does this mean?

The variable interest rate for mortgage loan consists of two parts – a fixed part and a variable part. The fixed part of a mortgage loan (margin) is set for each client individually, with regard to his income, loan history and loyalty to the bank. The fixed part will remain unchanged throughout the validity of the contract. The variable interest rate is calculated with reference to the European banks long-term funding margin (EBFMI), which reflects the price of the long-term funds borrowing in the market. In comparison with the earlier applied interest calculation principle the interest set in this method is smaller, as its part related to the long-term funds borrowing costs is transferred to the variable interest rate part, which is accordingly larger. Therefore, when comparing the two different interest models, account should be taken of the ultimate interest rate, rather than comparing its individual components.

What is the European banks long-term funding margin and how is it calculated?

The European banks long-term funding margin is an indicator reflecting the price of the long-term borrowing in the market. This indicator is calculated by adding the Euribor reflecting a short-term borrowing rate and the long-term funding margin (FMI), which is currently calculated by the international agency Bloomberg, considering the average rate at which twenty-one highly rated European banks currently borrow in the market based on their Euro-denominated bond quotes.

Why did we choose the European banks long-term funding margin?

We chose the European banks long-term funding margin because Lithuania is a Member State of the European Union, since 2015 its national currency is the Euro, and Lithuanian banks are in the process of integrating into the single European banking system.

In what way does the European banks long-term funding rate differ from Euribor, which is often used to compute the mortgage loan interest rates?

When obtaining a mortgage loan you ordinarily borrow for a considerable period of time; therefore, to calculate the mortgage loan interest rate we use the long-term funds borrowing price reflecting the European banks long-term funding margin (EBFMI). Distinctly from "Euribor" (which is a short-term funding price indicator), the long-term funds borrowing price shows the price at which banks borrow funds in the market for a log-term period. The EBFMI value is higher than "Euribor", and when the variable part is EBFMI, the margin is smaller than in the cases when the variable part of the interest rate is Euribor; therefore, if you compare the different interest models, you should consider the final amount of the interest rate.

When is the variable part of the interest rate changed?

That will depend on your choice. At the time of signing the agreement you may choose a 3-, 6- or 12-month period for changing the variable part of the interest rate.

How did the mortgage loan rate change after the introduction of the Euro?

We have not changed the variable mortgage interest calculation principle. We have replaced the Vilibor rate used to calculate the variable interest rate for mortgage loans in litas with the Euribor rate. Accordingly, for the loans with respect to which the interest was computed using the EBFMI for litas, this interest rate component was replaced by the EBFMI for Euros.