One Danish bank is taking the competitive mortgage market to new limits
Central banks are trending towards lower interest rates but when the overnight rate tips into negative territory, following suit may not be the obvious route for mortgage lenders.
But one bank in Denmark has done just that by taking the low rates environment to a new low – negative!
Jyske Bank is offering homeowners a 10-year mortgage at a rate of minus 0.5%, a great way to cut through in the competitive Danish mortgage market.
But the lender is not losing money from the deal as they can borrow from institutional lenders at negative rates, potentially lower than the -0.5% offered to borrowers, therefore still making a profit.
The deal does not mean that customers get cash in their bank accounts – or that they stop making mortgage payments each month, but they will pay back less than they borrow.
The negative interest rate reduces the amount they owe by more than their monthly payment, with the monthly payment also reducing over the 10-year period.
However, Danish customers are not accustomed to shorter amortization periods with 30-year mortgages more normal and that the fees associated with the 10-year deal are likely to be higher than they would otherwise pay.
