A major Danish bank will offer borrowers home loans with interest rates of minus 0.5 per cent, marking a significant world first.
Jyske Bank said the nominal interest rate will act as a “subsidy” to the repayment, with the bank’s housing economist Mikkel Høegh saying he also “hardly understands it”.
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“In fact, I said it can't be said. But we have figured out the extremes well, and it can be very possible to have a bond rate of minus.”
The 10-year deal will see mortgagors make monthly payments, but the amount remaining will be reduced every month by more than what the borrower paid.
However, it isn’t quite the amazing deal that it sounds like, Høegh said. Borrowers will need to pay banking fees and run the risk of their property depreciating in value.
And due to the short-term nature of the loans, they aren’t meant to cover the purchase of an entire home purpose. Instead, they’re designed to be used to cover home repairs or pay off debts with higher rates.
The bank borrows from institutional investors at a negative rate, with Høegh saying that the new offer is just the bank passing on the rate.
The negative rate is also a sign the bank believes the market may be heading into troubled times, and would rather suffer a smaller loss on the loan now than face the risk that borrowers would take out a high interest loan and default on it.
Fellow Danish bank, Nordea Bank Abp is also offering 20-year fixed-rate mortgages with 0 per cent interest.
Around five years ago, European countries looked to negative interest rates to boost their economies, with the idea that such rates encourage businesses and borrowers to spend and invest more in the economy.
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