Mortgage interest in Denmark is still below zero

Mortgage interest in Denmark is still below zero

The financial world was shocked slightly over a year ago (in August 2019) when Danish banks announced they would provide mortgage loans with a negative interest rate (-0.5% yearly percentage) for borrowers taking a mortgage loan for 10 years. For those borrowing for 20 and 30 years, the rate would still be over zero (up to +0.5%). This became possible because of low economic development, low inflation (+0.2% yearly), and housing prices stagnation. Another factor was a negative deposit yearly interest (-0.6% for deposits over 0.5 million Euros). That circumstance made banks calculate a negative mortgage rate to be expedient for the sustainable functioning of the banking system.

Now, a year after, we’ve analyzed the situation in Denmark to find out whether this practice came to end. Surprisingly, it turned out that as of the end of September 2020, the mortgage rates of most banks dropped even further! That also brought bond rates down. Now, the country-average effective mortgage rate is -0.6% yearly, with bonds dropping to as low as -1.1%. The coronavirus outbreak at the beginning of this year only shook the market slightly, not bringing any panic, and rates were fluctuating at levels -0.6%... -0.8%. A relatively sharp increase was in summer 2020, as rates rose to -0.2% but then they dropped again to levels where they are.

However, don’t plan to go to Denmark to buy all houses with the bank’s surplus to your mortgage – when the term of it ends, the housing prices will drop, causing you financial losses.