The bank that offers negative loan rates
A bank in Denmark offers mortgage loans at a negative rate, essentially paying its clients to borrow money to buy a home.
Jyske Bank, Denmark’s third-largest bank, announced last week that customers will now be able to get a 10-year fixed-rate mortgage with a -0.5% interest rate, meaning customers will pay less from the amount they borrowed.
To understand the -0.5% rate in simple terms: If you bought a home for $ 1 million and paid off your loan in 10 years, you would only pay $ 995,000 to the bank.
It should be noted that even with the negative interest rate, banks often impose debt-related charges, which means that homeowners can eventually pay more.
“It’s a new chapter in the history of mortgage lending,” Jyske Bank economist Mikkel H. told Danish television, according to the Copenhagen Post website. “A few months ago, we would say that would not have been possible, but we have been surprised again and again, and this opens up a new opportunity for homeowners.”
Jyske Bank’s negative interest rate is the latest in a series of extremely low interest rate offers from banks to Danish homeowners.
According to The Local, Nordea Bank, the largest bank in Scandinavia, has announced that it will offer 20-year fixed-rate mortgages at 0% interest rate. Bloomberg reported that some Danish banks offered a 30-year mortgage at 0.5% interest rate.
It should also be noted that negative interest rates are available in Denmark for short-term mortgage bonds from May, according to Bloomberg. It has only recently become readily accessible to consumers.
“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 unprofitable for banks to lend their money at such low interest rates – but there is a logic behind it.
Financial markets are at an unstable, uncertain point at this time. Factors include the US-China trade war, Brexit and a widespread economic slowdown around the world – and especially in Europe.
Many investors fear that there will be a significant financial crisis in the near future. Therefore, some banks are willing to lend money at negative interest rates, accepting a slight loss instead of risking more loss by borrowing money at higher interest rates that customers cannot meet.
“It is an unpleasant thought that there are investors who are willing to lend money for 30 years and get only 0.5% in return,” Bergmann said.
“It shows how frightened investors are about the current situation in the financial markets and that they expect it will take a very long time for things to improve.“