A Danish bank is offering mortgages at a 0.5% negative interest rate - meaning it is basically paying people to borrow money
- A bank in Denmark is offering borrowers the chance to take out mortgages at a negative interest rate, effectively meaning that it will pay customers to borrow money.
- Jyske Bank, Denmark's third-largest bank said this week that customers will now be able to take out a 10-year fixed rate mortgage with an interest rate of -0.5%.
- "A few months ago, we would have said that this would not be possible, but we have been surprised time and time again," Jyske Bank housing economist Mikkel Høegh said.
- Offering loans at a negative rate may seem counterintuitive. But some banks are content to take a guaranteed small loss rather than risk bigger losses.
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A bank in Denmark is offering borrowers mortgages at a negative interest rate, effectively paying its customers to borrow money for a house purchase.
Jyske Bank, Denmark's third-largest bank said this week that customers will 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 only pay the bank back $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 ultimately pay back more.
"It's another chapter in the history of the mortgage. 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 housing economist Mikkel Høegh told Danish TV, according to the news website Copenhagen Post.
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 will offer a 20-year fixed rate mortgage with 0% interest. Bloomberg reported that some Danish lenders are offering 30-year mortgages at a 0.5% rate.
"It's never been cheaper to borrow," Lise Nytoft Bergmann, chief analyst at Nordea's home finance unit in Denmark told 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 ongoing US-China trade war, Brexit, 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 which 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."