[kgwgk]

Not really. “As a result, oddities now abound. Danish lender Jyske Bank last week issued a 10-year mortgage bond at an interest rate of minus 0.5 per cent, meaning homeowners are being paid to borrow.”

In fact the providers of the capital will pay the bank for those mortgage-backed bonds (they get a negative yield). The bank will get some spread from the client, who will also pay.

https://www.google.ch/amp/s/amp.ft.com/content/820e3aac-ba1a...

[NKCSS]

Don't forget the mortage runs for 30 years and after 10 years, you are forced to pay the rate at that moment... so in the end, it will be ok :)

[adamlett]

There no rule that the mortgage will run for 30 years. It’s just what most people choose. But there’s nothing stopping anyone from paying back the entire mortgage in 10 years.

[megaremote]

> But there’s nothing stopping anyone from paying back the entire mortgage in 10 years.

Apart from not having the money.

[Phillipharryt]

I can't find all the fine details on this loan, but there are definitely loans that stop you from prepayment, or at least have a penalty associated with them. These penalties can be pretty large and definitely are a reason not to pay back the entire mortgage before 10 years. In this exceptional case I'm assuming there is a prepayment penalty for a large portion of that 10 year fixed rate period.

[kgwgk]

The discussion is about 10-year fixed rates. After 10 years you can either refinance or pay (and it’s not an anticipated payment), or maybe it’s already stipulated that the rate after 10-years is floating (but then cancellation is also much easier than in the middle of a fixed-rate mortgage).

[systemtest]

Those prepayment fines are basically what the bank is losing out on you. If you have a 3% mortgage and the current rate is 2%, then the bank would lose out 1% for the current mortgage period. That's the penalty.

[Phillipharryt]

That is not how the penalties are worded at all. Penalties are usually in the form of a percentage of a number of months' interest. I understand the fine is because the bank makes money on loans by being able to rely on them being a fixed long term, and the cancellation affects that, but it's not just the bank passing on that percentage loss directly.

[systemtest]

Perhaps it's a country thing. Here in the Netherlands that is how the banks calculate the prepayment fine. You are allowed to pay off 10% to 20% of the original sum per year but over that amount you pay a "boeterente" (interest-fine). It's equal to the amount of money the bank loses by loaning your money to someone else over the remainder of the fixed period (10/20/30 years).

[Dylan16807]

It's pretty ridiculous if the penalty isn't specified by the contract...

Whatever new rate you might get is not the business of your previous loan holder.

[systemtest]

They are specified in the contract. If you sign the mortgage contract you are giving the bank steady business for the next 10 years in return of a lower rate. By breaking that 10 year agreement the bank loses money which they will charge you for.

[adamlett]

I should have been more clear in my comment. What I meant was: There is no requirement that the maturity of a mortgage should be 30 years exactly.

[FelixGommen]

No. That is not the case. The negative interest in this case is for loans over 10 years. If you want to have it over 30 years you still have to pay one percent.

[Phillipharryt]

Did you read the actual page? It says on the banks FAQ that "You can now get a fixed-rate mortgage with a maturity of up to 10 years, where the nominal interest rate is negative.". So the opposite of what you said.

[planteen]

Could you refinance in say 5 years if rates were still negative then to get locked into 15 years of negative interest rates? Not sure on the mortgage market in Denmark, but in the US, refinancing mortgages common and is an industry of its own.

[greycol]

Generally a fixed term has a worse rate for the borrower than the floating rate (assuming the floating rate isn't expected to change hugely in the future).

As a rule of thumb if you refinance from a fixed rate to a better rate you have to pay penalty fees if the rate is worse for the lender (better for you) relative to how much the lender would have made off you if the loan had continued at the previous rate. Because of this it only really makes sense if you can save money on the loan due to other factors that current market rate i.e. being able to pay of your mortgage at a faster rate, your credit rating has improved (or equivalent lending criteria), the lender is noncompetitive compared to the rest of the market, you believe the floating rate will decrease further in the short term and want to refinance to a floating rate before the penalties increase to match (though you'd be outguessing the rest of the market).

Refinancing from a floating rate or a fixed rate that is better(for you) than the market rate will have no or low penalties as your basically already paying market rate or worse and the lender has little downside in getting their money back.

So realistically if you believe that in 5 years the interest rate will be the same or lower you should be floating (or at least negotiating 5 years fixed instead of 10) and then you could negotiate for a lock in at that time.

[adamlett]

In Denmark, if you have a fixed-rate mortgage, you are always allowed to buy back the bonds at their nominal value. For that reason, you absolutely can save money by refinancing when the the interest rates go down (you still have to pay some fixed fees in order to do so). The funny thing is, that you can sometimes also save money when the interest rate goes up, because in that case you can buy back the underlying bonds at less than their nominal value. The savings in this case come in the form of tax savings, because you can deduct the (higher) interest.

[kgwgk]

> you are always allowed to buy back the bonds at their nominal value

That’s very surprising. Do you have a reference in English?

Edit: nevermind, I’ve found that’s indeed the case and those are callable bonds (so the prepayment risk is included in the price).

[dev_north_east]

Just switch after 10 years?