The spark for the so-called housing boom came with successive drops in interest rates in the late 1990s. Banks passed on these declines in the price of money to their customers, and families did some number-crunching. Many concluded it was time to stop renting and buy a home. The sky-high interest rates of the 1980s started coming down until they reached the historic low levels of current times. Only then did people start taking out mortgages because only then could they afford it. Later, demand for homes shot up and so did their prices.

These days the supposed advantages of low interest rates - cheaper mortgages - are overshadowed by exorbitant prices for housing. A recent study by the real estate firm Bami said that the second quarter of 2002 saw the biggest price rise since 1998. Then, housing prices shot up 6.8 percent from the previous year. That growth continued and in the second three months of this year it reached a stunning 15.8 percent.

On December 5th, the European Central Bank reduced its core interest rate by half a point to 2.75 percent, close to its historic minimum of 2.5 percent. The BCE also cut its marginal rate (the percentage it charges on money it lends to banks and savings and loans) by half a point.

News of lower interest rates is welcomed by anyone with a variable-rate mortgage. Mortgages will be cheaper, but at the same time interest paid on deposits will be even skimpier. But for BCE cuts to benefit consumers, banks and savings and loans have to apply these reductions to their products. And they must also apply the discounts when they make annual or semiannual revisions to mortgage interest rates.

If the bank does not improve the terms of a loan in line with market conditions, clients can request that the interest be lowered. Or they can take their debt to another bank. This is generally expensive because you have to pay fees for canceling one loan and starting up another. So before carrying out either procedure, check if they need to be notarized because this raises the cost substantially.

In real terms, a drop of half a point in the interest rate saves you 1.70 euros per month per 6,000 euros of debt in the case of a 10-year mortgage. In other words, if banks passed on a half-point reduction to its clients right away, a person with a 180,700-euro mortgage (30 million pesetas) will see their monthly payment trimmed by 50 euros (8,400 pesetas).

Analysts say interest rates will keep going down and stay at historically low levels over the next few months.

Main interest rates
- Euribor: the most common of the benchmark indices. It the average daily one-year interest rate of the 64 biggest banks in Europe.
- Mibor: stems from the one-year interest rates of the inter-bank market in Madrid. This market is the one banks use in corporate operations.
- Ceca: interest rate set by the Confederaci�n de Cajas de Ahorro.
Deuda p�blica: average interest rate of Public Debt over six months.
- IRPH: Indice de Referencia de los Pr�stamos Hipotecarios of banks, used to adjust the rates of floating mortgages. The Bank of Spain publishes all of these rates monthly.