Euribor or interest rate collar?

[reindeer]

Hi,

As the Euribor is very low at the moment (about 0%), for a housing loan, is it wise to use margin + actual Euribor 12 months or something like the interest rate collar which is margin + Euribor 12 months cap (0.6% - 1%) for the next 5 years? The cap is set by the bank and I don't know how it relates to the actual Euribor. How likely is Euribor gonna rise in the next few years and what does it depend on?

Thanks!

[Rip]

I don't think there was sufficient information there, but in general:
I'm not too enthusiastic about rates can set them selves.
Euribors can hardly get much lower, but I don't see much chance of them getting much higher too in that Tim frame. The euroeconomy is going to be miserable for a long time.

Are we talking about the same bank, are all other terms equal? What I current interest on both? Is it pain or disaster for you if the interest do go up a few percentage points?

[betelgeuse]

As the Euribor is very low at the moment (about 0%), for a housing loan, is it wise to use margin + actual Euribor 12 months or something like the interest rate collar which is margin + Euribor 12 months cap (0.6% - 1%) for the next 5 years? The cap is set by the bank and I don't know how it relates to the actual Euribor. How likely is Euribor gonna rise in the next few years and what does it depend on?

Usually interest protection products from banks are crappy (even people working in corporate side of banks have said this to me about their consumer products). You are better off saving the cost to a savings account (You can get 1,60% currently) and using that to offset payments if the rates go up.

I don't think there was sufficient information there, but in general:

Agreed.

Are we talking about the same bank, are all other terms equal? What I current interest on both? Is it pain or disaster for you if the interest do go up a few percentage points?

To give you a loan the bank must have stress tested the applicant with 6% interest rates. You would only buy them to prepare for black swan events or if they are required to otherwise get the best deal possible.

[reindeer]

I don't think there was sufficient information there, but in general:
Are we talking about the same bank, are all other terms equal? What I current interest on both? Is it pain or disaster for you if the interest do go up a few percentage points?

Actually they are 2 different banks, but the margins are the same. It shouldn't be a disaster if the Euribor goes up a from zero (as it's now) to, for example, 1.5% but the point is that, lets say the margin is 0.7%, we'll be paying double interest rate for the bank with interest rate collar than the one without, at least for the first year. But of course, if the Euribor goes up high (> 1%) then it's better for us. Otherwise, we're overpaying money to the bank.

[betelgeuse]

Actually they are 2 different banks, but the margins are the same. It shouldn't be a disaster if the Euribor goes up a from zero (as it's now) to, for example, 1.5% but the point is that, lets say the margin is 0.7%, we'll be paying double interest rate for the bank with interest rate collar than the one without, at least for the first year. But of course, if the Euribor goes up high (> 1%) then it's better for us. Otherwise, we're overpaying money to the bank.

You are expected to overpay to the bank for the collar. It's their business to make a profit out of it.

[reindeer]

You are expected to overpay to the bank for the collar. It's their business to make a profit out of it.

Obviously, this way or that way. However, my concern is how likely the Euribor will rise in the next few years. It's without a doubt that if the Euribor remains this low, interest rate collar is more expensive and other way around otherwise.