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Dansk bank offers mortgage loan at negative interest rate



A bank in Denmark offers borrowers mortgages at a negative interest rate, and actually pays their customers to borrow money for a home purchase.

Jyske Bank, Denmark's third largest bank, said this week that customers will now be able to take a 10-year fixed rate with an interest rate of -0.5%, which means customers will repay less than the amount they borrowed.

To set the interest rate -0.5% on simpler terms: If you bought a million dollar house and paid off your mortgage in full in 10 years, you would only repay the bank $ 995,000.

It should be noted that, even with a negative interest rate, banks often require borrowing fees, which means that homeowners can eventually pay back more.

Read more: How Europeans' net wealth is "now solely driven" by negative interest rates

"There is another chapter in mortgage history. 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 Copenhagen Post news website.

Copenhagen's famous Little Mermaid statue, one of Denmark's most famous attractions.
News Oresund / Flickr

Jyske Bank's negative interest rate is the latest in a series of extremely low interest rates from banks to Danish homeowners.

According to The Local, Nordea Bank, Scandinavia's largest lender, said it would offer a 20-year fixed rate with 0% interest rate. Bloomberg reported that some Danish lenders offer 30-year mortgages at a 0.5% rate.

"It has never been cheaper to borrow," Lise Nytoft Bergmann, chief analyst at Nordea's home economics unit in Denmark, told Bloomberg.

It may seem the opposite for banks to lend their money at such low rates – but that is a reason behind it.

Ongoing trade tensions between the US and China drive fears and uncertainty in the financial markets.
Associated Press / Andy Wong

The financial markets are in an unstable, uncertain place right now. Factors include the ongoing US-China trade war, Brexit, and a generalized economic downturn worldwide – and especially in Europe.

Many investors fear a significant crash in the near future. As such, some banks are willing to lend money at negative interest rates by accepting a small loss rather than risking a larger loss by lending money at higher interest rates that customers cannot meet.

Read more: Economists had never imagined negative interest rates – now they write about textbooks

"It is an unpleasant thought that there are investors willing to lend money for 30 years and only get 0.5% in return, "Bergmann said.

"It shows how scared investors are for the current situation in the financial markets, and that they expect it will take a very long time for things to improve."


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