Home / Finance Banking / Danish bank offers mortgages with negative 0.5% interest rates—here’s why that’s not necessarily a good thing

Danish bank offers mortgages with negative 0.5% interest rates—here’s why that’s not necessarily a good thing

Jyske Bank A/S, Denmark’s third-largest bank, announced on Monday, Aug. 5, that it is offering 10-year mortgages at a rate of negative 0.5%.

Another Danish bank, Nordea Bank Abp, also said that it will begin offering 20-year fixed-rate mortgages with 0% interest, as well as 30-year mortgages at 0.5%, Bloomberg reports.

While a negative interest rate makes it sound like borrowers will be paid to take out a mortgage rather than pay the bank interest, the reality is more complicated. With banking fees, borrowers could still end up owing money on the loan, not earning it, Mikkel Høegh, a housing economist for Jyske Bank, says.

Plus, due to the short term of the loans offered by Jyske Bank, they aren’t meant to finance an entire home purchase. They are intended to be supplemental loans that can be used for home repairs and upgrades or to pay off debts with higher rates, the bank says.

Negative rates in general are a sign that lenders are wary of where the markets are headed. Some banks are willing to take a smaller loss now by offering low or negative interest rates, rather than risking borrowers taking out higher interest loans that they won’t be able to pay back in the future.

“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,” Lise Nytoft Bergmann, chief analyst at Nordea’s home finance unit in Denmark, told Bloomberg.

“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.”

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