# Difference between 1 month Euribor and 3 month Euribor



## buyingabroad (16 Jan 2008)

Hi all,

I am currently putting funding in place for a small construction project.

Banks are quoting me a margin (say 2%) over and above Euribor.

Euribor is currently 4%. But then I see quotes for 1 month Euribor and 3 month Euribor. What is all this about? And what should I budget for when doing the maths on the project?

Many thanks.


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## ClubMan (16 Jan 2008)

Any use?

http://en.wikipedia.org/wiki/Euribor


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## Statler (16 Jan 2008)

Just to note that Euribor is not 4%, that is the ECB's 1 month rate. Right now 1 month Euribor is 4.2% and 3 month Euribor is 4.5%. Which rate you should be looking at will be identified in the definition of Euribor in the terms & conditions of your loan. If you have not received any documentation yet, ask the lender which applies.


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## buyingabroad (17 Jan 2008)

Thanks for the replies.

- Why would one borrow using 3 month Euribor if it costs a lot more than the 1 month?

- In my case, where I have a margin of 2%, what is the all in cost of funding?

- Lastly, is it easy enough to fix the borrowing rate with some sort of hedge?

Thanks again.


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## Statler (17 Jan 2008)

The rate depends on how long the funds are borrowed for -3 month borrowings will be at 3 month Euribor (4.446% today).

In your case the all in cost of funding will depend on how the Euribor rate is defined in the terms & conditions. I would guess interest is applied quarterly and it will therefore be 3 month Euribor that applies, but check with your lender or the terms & conditions if you have a copy. Assuming this is the case and today is the start of a new interest period, your all in rate would be set at 6.446% for the quarter. I'm making a number of assumptions here and every loan offer/ facility agreement can be different so I would urge you to check with your lender - they will be able to give you a figure very easily.

I do not think there is any practical/ cost efficient way for you to hedge this rate independently. By far the most simple way to achieve this is to ask your lender for a fixed rate, they should be easily able to accommodate.


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## gailserra (18 Aug 2008)

unless its a very large project you should always be offered 3 or 6 month Euribor. i would recommend 3 month Euribor, its cheaper for you. the margin above the Euribor quoted at 2% is quite high for non resident. you should be aiming for 0.75% to 1.5% at the most.
a fixed rate would not be in your favour at this stage.


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## marksa (19 Aug 2008)

gailserra said:


> the margin above the Euribor quoted at 2% is quite high for non resident. you should be aiming for 0.75% to 1.5% at the most.
> a fixed rate would not be in your favour at this stage.


 
You are assuming here that the OP has given the lender full security over the funds. An even partially unsecured development in Ireland is now akin to leprosy for Banks! If you can get a bank to lend, even secured, at 75bps then go for it! 

Consider that Bank of Ireland issued collateralised senior debt earlier this year at 45bps over Euribor for 3 year funds, and AIB 35bps over Euribor for 2 year secured debt.

On the original posting - I suggest getting a download of the 1mth and 3 month euribor from www.euribor.org into excel and work out an average of 12 month observations of 1m Vs 4 of the 3m for each set of scenarios, and what you will find is that they will average out to something close to the same - in other words swings and roundabouts.


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## mercman (19 Aug 2008)

Well if you are able to pick up lending at anywhere 0.75 to 1.5% over Euribor take it. Banks are looking at much higher margins at present, especially for short term lending.


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## The Banker (20 Aug 2008)

gailserra said:


> unless its a very large project you should always be offered 3 or 6 month Euribor. i would recommend 3 month Euribor, its cheaper for you. the margin above the Euribor quoted at 2% is quite high for non resident. you should be aiming for 0.75% to 1.5% at the most.
> a fixed rate would not be in your favour at this stage.


 

There isnt a hope off getting a margin of 0.75% (not even when the banks were lending was this margin available for construction projects) for a construction project. there may be value in fixing. the 5 year fixed rate is 37 basis points lower than 3 month euribor today.

The majority of Banks are now lening off 3 month euribor as this is the rate they are borrowing at. 1 month euribor is nearly 50 basis points cheaper so if you can get it go for it.


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