April 11, 2021

What is the IRPH clause for mortgages and how is it calculated?


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The IRPH clause It refers to Mortgage Loan Benchmark Index and it is a method to calculate the interest that has to be paid to the bank that offers you the loan. This clause appeared in many variable rate mortgages that opted for it instead of the Euribor. Over time it has been seen that many mortgages adjusted to the Euribor paid much less interest, which has led to legal claims to see if they were abusive clauses.

In the past, this index was sold as more favorable than the Euribor, which has been seen as impossible due to how it is calculated. In fact, many users opted for this system for calculating variable interest rates, which later have been seen as much worse than the Euribor, which has led to lawsuits and judgments against it due to the alleged lack of transparency in its commercialization. Last year the Court of Justice of the EU ruled that the judges of each country could substitute the IRPH of mortgages for another similar index if they believe that the commercialization was not clear at the time.

Types of IRPH and how it is calculated

At the time there were up to three types of IRPH. The IRPH Banks It was calculated with the average of the interest rates of the mortgage loans of the banks of the last 3-year period. The IRPH of Boxes it was calculated in the same way, but following the interest on the loans given by the savings banks. And the IRPH of Entities, which was a common average of the previous two. The Bank of Spain is in charge of calculating the IRPH, collecting all the information on mortgages constituted in Spain and with a duration of more than 3 years for each entity, and making an arithmetic mean between the interest of each entity.

The idea of ​​this index was that it could be less volatile than the Euribor was at the time, which meant a some protection for customers against market fluctuations, but as it has been shown in the end it supposes a calculation clearly less beneficial in economic terms. This notion was much more evident when in February 2016 the Euribor went negative for the first time in history, while the IRPH remained at around 2%.

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