Tag Archives: Negative Mortgage Rate

Negative Rate Home Mortgages Rolled Out In Denmark

A bank in Denmark is offering borrowers mortgages at a negative interest rate, effectively paying its customers to borrow money for a house purchase.

denmark little mermaid

Copenhagen’s famed Little Mermaid statue, one of Denmark’s best-known attractions – News Oresund/Flickr

Jyske Bank, Denmark’s third-largest bank, said this week that customers would now be able to take out a 10-year fixed-rate mortgage with an interest rate of -0.5%, meaning customers will pay back less than the amount they borrowed.

To put the -0.5% rate in simple terms: If you bought a house for $1 million and paid off your mortgage in full in 10 years, you would pay the bank back only $995,000.

It should be noted that even with a negative interest rate, banks often charge fees linked to the borrowing, which means homeowners could still pay back more.

“It’s another chapter in the history of the mortgage,” the Jyske Bank housing economist Mikkel Høegh told Danish TV, according to the news website Copenhagen Post. “A few months ago, we would have said that this would not be possible, but we have been surprised time and time again, and this opens up a new opportunity for homeowners.”

Jyske Bank’s negative rate is the latest in a series of extremely low interest offers from banks to Danish homeowners.

According to The Local, Nordea Bank, Scandinavia’s biggest lender, said it would offer a 20-year fixed-rate mortgage with 0% interest. Bloomberg reported that some Danish lenders were offering 30-year mortgages at a 0.5% rate.

It should also be noted that negative rates have been available on short-term mortgage bonds in Denmark since May, according to Bloomberg; they have only just been made directly available to consumers.

“It’s never been cheaper to borrow,” Lise Nytoft Bergmann, the chief analyst at Nordea’s home finance unit in Denmarktold Bloomberg.

It may seem counterintuitive for banks to lend out their money at such low rates — but there is a rationale behind it.

Financial markets are in a volatile, uncertain spot right now. Factors include the US-China trade warBrexit, and a generalized economic slowdown across the world — and particularly in Europe.

Many investors fear a substantial crash in the near future. As such, some banks are willing to lend money at negative rates, accepting a small loss rather than risking a bigger loss by lending money at higher rates that customers cannot meet.

“It’s an uncomfortable thought that there are investors who are willing to lend money for 30 years and get just 0.5% in return,” Bergmann said.

“It shows how scared investors are of the current situation in the financial markets, and that they expect it to take a very long time before things improve.”

Source: by Will Martin | Business Insider

Easy Money Blog Observations:

This doesn’t mean borrowers are being paid to take mortgages.

Jyske Bank appears to describe in the attached press release that they add a 1% “variable contribution rate” + fees to a -0.5 negative “bond rate”, resulting in borrowers qualifying to pay a positive amortized rate over a maximum 10 year period, plus taxes and insurance, to 80% loan to value at closing.

Most home buyers are unable to qualify for a ten year mortgage with 20% down. This means the program is being targeted to existing equity rich homeowners interested in cash out mortgages. 

https://www.jyskebank.dk/bolig/nyheder/realkredit-med-negativ-rente

 

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Danish Mortgage Rates Drop to Negative 0.2%

In the land of negative rates, yet another record has been set

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The best time to visit Copenhagen is Summer—June, July, and August—when the days are long and relatively warm and outdoor cafes are crowded.

(Reuters – COPENHAGEN) – Interest rates in Denmark’s mortgage bond market, one of Europe’s largest, are hovering around their lowest ever levels due to strong international appetite for the top-rated bonds.

30 year fixed for 1.5%

The country’s largest mortgage lender Nykredit on Friday began issuing 30-year mortgage loans with a fixed rate of just 1.5 percent, revisiting a 2015 record-low.

“The low risk of these triple-A rated papers combined with interest rates of 1.5 to 2.0 percent is attractive in international comparison,” chief analyst Jeppe Borre of Totalkredit, a unit of Nykredit, said.

“Therefore we’ve seen foreigners increase their share of ownership in these bonds significantly”.

Most European bonds have rallied over the past month after the European Central Bank extended asset purchases until September 2018 and left it open-ended beyond that.

Investors are paying Danes to finance negative rates

Danske Bank, the second-largest mortgage lender, on Friday concluded the latest batch of auctions over ‘flex-loans’, one-year adjustable rate-loans, with an interest rate of negative 0.20 percent, the lowest ever for that bank.

“The economic developments in Denmark and Europe are pushing interest rates to these extremely low levels. It looks as if it will continue for some time to come,” senior economist Sonia Khan of Danske Bank’s mortgage unit Realkredit Danmark, said.

Some investors may also be choosing to place their money in Danish bonds rather than German ones due to the political uncertainty stemming from the prolonged coalition talks in Berlin, Khan added.

The main owner of Nykredit late on Thursday decided to go ahead with the sale of a 10.9 percent stake to five pension funds, putting an end to plans to publicly list the company.