There was an HN discussion about this where several Danes mentioned that these loans still come with assorted fees and taxes which effectively amount to a low, but still positive, interest rate.
Dane here. A piece is missing. Interest rates may be 0%, but there is also an annual bank fee on the loans. As the interest rates have gone down, these fees have risen, and I believe the banks increasingly make their money on those. It's still good news for borrower, since the fees don't accrue interest.
Denmark has had negative interest rates in the past (though typically for 10 years), so there's that hedge for starters, but there's also fees & gov subsidy/lending incentives/enforcement
> In reality, the Jyske mortgage borrower in Denmark is likely to end up paying back a little more than they borrowed, as there are still fees and charges to pay to compensate the bank for arranging the deal, even when the nominal rate is negative.
In real reality, Danish banks are charging 0% interest for mortgages and making their money off of closing fees[1]. Also the natural rate of interest is zero[2].
Just because you've been raised from birth to believe usury is necessary for the payment system (not the economy!) to function doesn't make it so.
In Denmark, the difference in interest is 1.5-2.5% between a fixed interest loan and a variable one. Historically it has always been a good idea with a variable interest loan, but that changed after covid.
Yeah it seems kind of obvious. It's also worth pointing out that you can get a 30-year fixed rate loan at just above 1% in interest [1]. Money is cheap, so people are likely to borrow more.
To clarify, negative after fees. The Danish mortgages are not negative after fees. The question is, could we cross that line? Then the bank wouldn't be making any money on the loan.
that denmark negative interest rate is interesting. But it still doesn't quite answer the central issue - who is "giving up" money to lend? The guardian article (https://www.theguardian.com/money/2019aug/13/danish-bank-lau...) only mentions that it's banks passing on negative rates from institutional lenders in money markets.
I'm curious why this hasn't been competed away. Short-term rates in Denmark are -0.6%. Couldn't banks just borrow short, write mortgages at 0% and pocket 60 basis points?
It's a little screwy, because you're getting paid the lenders instead of the borrowers. But it's still fundamentally no different than a bank that borrows at 2.5% and writes mortgages at 3% APR.
In Sweden - the current interest rate is 1%. This is financed by the state and is low because of a multitude of factors. One being that it is practically impossible to default on the loan. It will stick around.
(The tuition is free for higher education in Sweden, but you can choose to take out a loan for your living expenses during your study period).
But one forgets that even though the interest rate is 0% the COST of the loan is !=0, we still have to pay a "bidragsssats" which is an "administrative fee" to have the loan
The interesting part is that that this rate can be changed over time to whatever the lone-shark wants it to be, thus - as always - you need to look at the TCO.
ÅOP as it is in danish: "Årlig Omkostning i Procent" - aka the Yearly cost in percent...
reply