Financial institutions must apply new IRS reference rates for mortgage risk compensation

The Bank of Spain has issued a resolution on August 3, 2026, publishing the indices and reference rates applicable for calculating the market value in the compensation for interest rate risk in mortgage loans, as well as for determining the differential applicable to obtain the market value of loans or credits that are cancelled early (BOE-A-2026-17569). This technical update provides the necessary benchmarks for financial entities to value interest rate exposure and manage the costs associated with early repayments or risk adjustments.

What changes

The resolution establishes the specific Interest Rate Swap (IRS) percentages that must be used for two distinct financial calculations. According to Art. 1.A of the resolution, the reference rates for calculating the market value in the compensation for interest rate risk in mortgage loans are as follows:

• Two years: 2.909%
• Three years: 2.921%
• Four years: 2.936%
• Five years: 2.957%
• Seven years: 3.017%
• Ten years: 3.124%
• Fifteen years: 3.267%
• Twenty years: 3.315%
• Thirty years: 3.248%

Furthermore, per Art. 1.B, the resolution defines the specific rate required to calculate the differential applied to obtain the market value of loans or credits that are cancelled early. For this purpose, the 1-year Interest Rate Swap (IRS) rate is set at 2.718%.

These rates are not discretionary; they constitute the mandatory technical basis for any entity performing these specific valuations under the framework of the Bank of Spain's regulatory oversight.

Context

This resolution is part of the continuous regulatory monitoring performed by the Bank of Spain to ensure transparency and standardization in the financial markets. The methodology and the definition of these indices are governed by the Bank of Spain Circular 5/2012, of June 27. In the complex landscape of interest rate fluctuations, these periodic publications ensure that all credit institutions use a synchronized benchmark when calculating the "market value" of a loan. This prevents arbitrary pricing by banks when a client decides to cancel a mortgage early or when the bank needs to compensate for the interest rate risk it assumes during the life of the loan.

In the broader economic environment, these rates reflect the market's expectation of future interest rate movements. For financial entities, staying compliant with these published indices is essential to avoid legal disputes regarding the accuracy of the compensation amounts charged to consumers or other institutional clients.

Who is affected and how

Financial Institutions and Credit Entities: These are the primary subjects of the regulation. They are legally obligated to apply these specific IRS rates when calculating the market value for interest rate risk compensation in mortgages and when determining the differential for early cancellations (Art. 1). Failure to use these official benchmarks could lead to regulatory non-compliance and challenges to the validity of the compensation amounts charged to clients.

Individual Mortgage Holders and Credit Clients: While individuals do not "apply" the rates, they are the direct beneficiaries of the transparency these rates provide. If you hold a mortgage or a credit subject to interest rate risk compensation or early cancellation fees, the amount the bank charges you is indirectly determined by these indices. These rates ensure that the "market value" the bank claims is based on standardized, official data rather than internal, non-transparent models.

Large Corporations and Institutional Investors: Entities managing large portfolios of credit or mortgage-backed assets must integrate these reference rates into their risk management and valuation models to ensure that their internal accounting for interest rate risk aligns with the Bank of Spain's published standards.

An example

Suppose a client holds a mortgage with a remaining term that requires a 10-year valuation for interest rate risk compensation. According to Art. 1.A of the resolution (BOE-A-2026-17569), the bank must use the 10-year IRS rate of 3.124% to calculate the market value. If the client decides to cancel a different credit early, the bank must use the 1-year IRS rate of 2.718% (Art. 1.B) to calculate the necessary differential for the market value calculation. This prevents the bank from using a higher or lower rate that might unfairly increase the cost of the cancellation for the client.

What to do and when

The application of these rates is immediate for the relevant financial operations corresponding to the July 2026 period. There is no specific grace period mentioned, as these rates serve as the current benchmark for the month's calculations (Art. 1).

• For Financial Entities: Update internal valuation engines and risk management systems to reflect the July 2026 IRS rates immediately to ensure all new compensations and cancellation calculations are compliant.
• For Mortgage Holders: When reviewing any compensation charge or early cancellation fee from your bank, verify that the calculation aligns with the published rates for the corresponding term (e.g., 2.718% for 1-year differentials).
• For Compliance Officers: Ensure that the methodology used for market value calculation strictly adheres to the Bank of Spain Circular 5/2012 as referenced in the resolution.

Given the technical nature of these calculations, we recommend consulting with the specialized legal and tax department at BMC to evaluate any specific discrepancies in your financial operations or credit agreements.