Mortgage Refinance in Denmark
Mortgage Refinance Denmark
Free, 100% digital Mortgage loan refinance comparison
Save money with lower interest rates
Instant answers from up to 21 Danish lenders
Mortgage refinance in Denmark involves restructuring an existing property loan to secure better terms, adjust the interest rate profile, or release equity. The Danish mortgage system is unique globally because it is directly linked to the bond market. When a borrower takes out a mortgage, the mortgage bank issues bonds that are sold to investors. Refinancing, often called “omlægning af lån,” essentially involves buying back the old bonds and issuing new ones.
Homeowners in Denmark frequently monitor interest rate movements to optimize their housing finances. A refinance can result in lower monthly payments, a reduction in the outstanding debt, or a change from a variable interest rate to a fixed rate. The process is strictly regulated and involves specific costs, including state registration fees and trading commissions. Understanding the mechanics of the Danish bond market is essential for any borrower considering this financial move.
The timing of a refinance depends heavily on the current market price (kurs) of the bonds behind the loan. If interest rates rise or fall significantly, the value of the underlying bonds changes. This fluctuation creates opportunities for borrowers to restructure their debt advantageously. Danish banks and mortgage institutes (realkreditinstitutter) facilitate these transactions, but the borrower must meet specific creditworthiness criteria.
Rates and Fees
The costs associated with refinancing a mortgage in Denmark are a combination of interest rates, administrative margins, and one-time transaction fees. The following table outlines the typical cost structure and parameters for mortgage refinancing.
| Component | Typical Range / Cost | Notes |
|---|---|---|
| Interest Rate (Fixed) | 3.0% – 6.0% | Depends on current market bond yields. |
| Interest Rate (Variable) | 2.5% – 5.5% | Adjusts periodically (F1, F3, F5, Kort Rente). |
| Bidragssats (Admin Margin) | 0.6% – 1.5% per year | Paid to the mortgage bank. Higher for high Loan-to-Value (LTV). |
| Establishment Fee | 3,000 – 10,000 DKK | Fee paid to the bank for processing the new loan. |
| Tinglysningsafgift (State Fee) | 1,825 DKK + 1.45% | 1.45% applies only to the increase in the principal amount. |
| Kurtage (Brokerage) | 0.15% – 0.20% | Fee for trading the bonds (selling old, buying new). |
| Differencerenter | Variable | Interest compensation if bonds are redeemed outside a refinancing window. |
| Approval Time | 1 – 3 Weeks | Includes valuation and credit assessment. |
The “Bidragssats” is a mandatory administration fee paid quarterly to the mortgage institute. This fee covers the bank’s operational costs and risk. The percentage is calculated based on the loan-to-value ratio. The portion of the loan between 60% and 80% of the property value attracts the highest bidragssats. Refinancing often triggers a new property valuation. If the property value has increased, the loan-to-value ratio decreases, potentially lowering the bidragssats.
“Differencerenter” (difference interest) is a critical cost to consider. If a borrower redeems a fixed-rate loan immediately rather than waiting for the standard termination date (opsigelsesfrist), they must pay the interest due to the bondholders until the next payment date. Proper timing of the refinance notice can eliminate this cost. Borrowers should consult their bank to calculate the break-even point where the savings from the new loan outweigh these upfront costs.
The Danish Mortgage System Explained
The Danish mortgage model is distinct from systems in other countries. In Denmark, mortgage loans are funded by the issuance of covered bonds. This creates a transparent link between the borrower and the financial markets. When a homeowner pays interest, it flows through the mortgage bank directly to the bond investors. The mortgage bank acts as an intermediary and charges the bidragssats for this service.
This system allows for the “delivery option.” A borrower always has the right to redeem a loan at par (price 100) or at the current market price, whichever is lower. This rule is the foundation of mortgage refinancing in Denmark. It protects the borrower against locking in high interest rates forever. If market rates drop, the borrower can refinance to a cheaper loan. If market rates rise, the borrower can buy back their debt at a discount.
Realkreditinstitutter vs. Banks
Refinancing usually involves a “Realkreditinstitut” (mortgage credit institution) such as Nykredit, Totalkredit, Jyske Realkredit, or Nordea Kredit. These institutions specialize solely in mortgage loans funded by bonds. They are distinct from retail banks, although most retail banks cooperate with a specific mortgage institute.
Retail banks handle the advisory process. They assess the borrower’s finances and facilitate the contact with the mortgage institute. While the mortgage loan (up to 80% of the property value) resides with the mortgage institute, any supplementary financing (bank loans for the remaining amount) is held directly by the retail bank. Refinancing primarily concerns the 80% portion funded by bonds.
Types of Mortgage Refinancing
There are three main strategies for refinancing in Denmark. Each serves a different financial goal. The correct choice depends on the borrower’s risk tolerance, time horizon, and the direction of interest rates.
Downward Conversion (Nedkonvertering)
Downward conversion is the most traditional form of refinancing. It occurs when market interest rates fall. A homeowner with a high-interest fixed-rate loan replaces it with a new loan at a lower interest rate.
For example, a borrower has a 5% fixed-rate loan. Market rates drop to 3%. The borrower takes a new 3% loan to pay off the 5% loan. The outstanding debt remains roughly the same, but the monthly interest payments decrease significantly. This improves the borrower’s disposable income. The primary cost is the trading fee and registration fee, so the rate drop must be substantial enough to recoup these costs within a few years.
Upward Conversion (Opkonvertering)
Upward conversion is a strategic move used when interest rates rise. It involves switching from a low-interest fixed-rate loan to a higher-interest loan. This might seem counterintuitive, but the goal is to reduce the principal debt.
When interest rates rise, the price (kurs) of existing low-interest bonds falls. A bond with a 1% coupon might trade at price 70 when current market rates are 5%. The borrower can buy back their 1% loan at price 70. For every 1,000,000 DKK owed, they only pay 700,000 DKK to close the loan. They then take out a new loan for 700,000 DKK at the new 5% rate.
The result is a lower total debt (1,000,000 DKK becomes 700,000 DKK). However, the interest rate is higher, so the monthly payment might increase. This strategy is a bet that rates will eventually fall again, allowing the borrower to do a downward conversion later on the reduced debt amount.
Profile Change (Omlægning af risikoprofil)
Homeowners may refinance to change the risk profile of their loan. This involves switching between fixed-rate loans and variable-rate loans (FlexLån).
Switching from variable to fixed provides security. If a borrower expects rates to skyrocket, locking in a fixed rate protects their monthly budget. Conversely, switching from fixed to variable usually offers a lower immediate interest rate, reducing monthly expenses. This is common for borrowers who plan to sell the house soon or who have a robust budget that can handle rate fluctuations.
The Role of Bond Prices (Kurs)
The “Kurs” (price) is the most critical factor in Danish mortgage refinancing. It represents the market value of the bonds backing the loan. Bond prices move inversely to interest rates.
When a borrower takes a new loan, they want the Kurs to be as close to 100 as possible. If the Kurs is 98, the borrower receives 98 DKK for every 100 DKK of debt they incur. The 2% difference is a capital loss (kurstab). If the Kurs is above 100, the loan cannot be issued at that coupon rate, and the borrower must choose a lower coupon rate or a different loan type.
When redeeming an old loan, the Kurs determines the cost of exit. Fixed-rate loans can always be redeemed at Kurs 100. This is a safety cap. Even if the market price of the bond rises to 105, the borrower can exit at 100. However, if the market price is 80, the borrower can buy the bonds in the market at 80 to cancel the debt. This mechanism drives the debt reduction in upward conversions.
Costs Breakdown
Refinancing is not free. The transaction costs can amount to thousands of kroner. It is vital to use a mortgage calculator Denmark to ensure the long-term savings justify the upfront fees.
Brokerage Fees (Kurtage)
Banks charge a brokerage fee for trading bonds. This is typically between 0.10% and 0.20% of the loan amount. Since refinancing involves both selling old bonds and buying new ones, this fee applies to both sides of the transaction.
Registration Fee (Tinglysningsafgift)
The Danish state charges a fee to register the new mortgage deed. The fixed fee is 1,825 DKK. There is also a variable fee of 1.45%. However, when refinancing, the variable fee is generally only charged on the increase in the principal amount. If the new loan is smaller or equal to the old loan, the borrower usually only pays the fixed fee of 1,825 DKK.
Bank Fees
The bank charges an establishment fee (stiftelsesprovision) and a handling fee (ekspeditionsgebyr). These cover the administrative work of processing the application, ordering the valuation, and handling the legal documents. These fees vary significantly between banks and can sometimes be negotiated.
Early Repayment Fees
If a loan is refinanced between payment dates, the borrower may have to pay “differencerenter.” This compensates the bondholders for the interest they lose when the loan is prepaid before the standard notice period expires. Giving notice to the bank well in advance of the quarterly refinancing deadline (opsigelsesfrist) avoids this cost.
Eligibility and Credit Assessment
Danish banks are required by law to assess the creditworthiness of any borrower seeking to refinance. Even if a borrower has paid their mortgage on time for years, a new credit check is mandatory for a new loan. The assessment focuses on income, disposable income, and existing debt.
Income Verification
Banks verify income using “eSkattekort.” This digital tax card allows the bank to pull data directly from Skattestyrelsen (The Danish Tax Agency). Borrowers must provide access via MitID. The bank reviews the most recent annual statement (Årsopgørelse) and current payslips to ensure income stability.
Disposable Income (Rådighedsbeløb)
The most important metric is the disposable income. This is the amount left over after all fixed expenses (taxes, insurance, utilities, existing debt) are paid. The Danish Financial Supervisory Authority (Finanstilsynet) sets guidelines for the minimum disposable income required for a household. If the new loan results in a disposable income below these thresholds, the refinance may be rejected.
Credit History
Banks check the RKI (Ribers Kredit Information) and the Debitor Registret. These are databases of bad payers in Denmark. Being listed in RKI generally makes it impossible to refinance with a mainstream mortgage institute. Borrowers listed in RKI must resolve their defaulted debts before they can access the bond market.
The Refinancing Process
Refinancing a mortgage in Denmark follows a structured timeline. The process usually takes between 3 to 6 weeks, depending on the complexity and the speed of the valuation.
1. Consultation and Calculation
The borrower contacts their bank to request a calculation. The advisor provides a “konverteringsberegning” (conversion calculation). This document shows the old loan versus the new loan, highlighting changes in monthly payments, outstanding debt, and total interest costs over the life of the loan.
2. Property Valuation
The mortgage institute sends a valuer (vurderingsmand) to the property. The valuation determines the current market value of the home. This figure sets the limit for the 80% loan. If the property value has risen, the borrower might get a lower bidragssats or be able to release equity.
3. Loan Offer
Based on the valuation and credit check, the mortgage institute issues a formal loan offer. This offer is valid for a specific period, typically 3 to 6 months. The offer details the bond series, the coupon rate, and the estimated Kurs.
4. Locking the Rate (Kurssikring)
Bond prices fluctuate every minute. To guarantee the terms of the new loan, the borrower can pay for “kurssikring” (rate lock). This freezes the Kurs for the new loan, protecting the borrower against market movements during the processing period.
5. Execution and Registration
Once the borrower accepts the offer, the bank executes the trade. They sell the new bonds and use the proceeds to buy back the old bonds. The new mortgage deed is digitally registered at Tinglysningsretten. The borrower signs the documents using MitID.
Releasing Equity (Friværdi)
Refinancing is a common method for accessing “friværdi” (free value or equity). If the property value has increased or the principal has been paid down, the gap between the current debt and 80% of the property value represents accessible equity.
Homeowners can increase their mortgage loan up to the 80% limit during a refinance. The cash proceeds can be used for home improvements, purchasing a car, or other major expenses. Using mortgage equity is often cheaper than taking a separate loan in Denmark, such as a consumer loan or a specialized car loan, due to the lower interest rates on mortgage debt.
However, increasing the loan amount increases the monthly payment and the bidragssats. The bank will perform a stricter credit check for equity release, as the total debt burden increases. They must ensure the borrower can afford the higher payments even if interest rates rise further.
Debt Consolidation via Refinancing
Borrowers with high-interest consumer debt or bank loans can use mortgage refinancing for consolidation. By rolling expensive debt into the cheaper mortgage loan, the total monthly outlay is often reduced.
This strategy requires sufficient equity in the property. The mortgage loan cannot exceed 80% of the valuation. If the total debt exceeds this limit, the borrower might need a “boliglån” (bank housing loan) for the excess, which has a higher interest rate than the mortgage loan but is still typically lower than consumer credit. A debt consolidation loan in Denmark is a specific product for this, but doing it through a mortgage refinance is usually the most cost-effective method if the LTV allows it.
Tax Implications
Interest payments on mortgages in Denmark are tax-deductible. This is known as “rentefradrag.” The deduction value is approximately 33%, meaning for every 100 DKK paid in interest, the tax bill is reduced by roughly 33 DKK.
When refinancing, the interest expenses change. If the interest rate drops (downward conversion), the tax deduction decreases. This means the net saving is lower than the gross saving in interest payments. Conversely, if the interest rate rises (upward conversion), the tax deduction increases, softening the blow of the higher monthly payment.
Banks automatically report interest payments to Skattestyrelsen. However, immediately after a refinance, the preliminary income assessment (Forskudsopgørelse) may be inaccurate. Borrowers should log in to TastSelv on Skat.dk and update their interest estimates to ensure they pay the correct tax throughout the year.
Risks and Considerations
Refinancing carries financial risks that must be weighed against the benefits. The primary risk in upward conversion is that interest rates do not fall again. The borrower is then left with a higher monthly payment for the duration of the loan. While the principal debt is lower, the cost of servicing that debt is higher.
For variable-rate loans, the risk is market volatility. Refinancing into a FlexLån (F1, F3, F5) exposes the borrower to rate hikes at every refinancing interval. If rates surge, the monthly payment can increase drastically.
Another risk involves the “Indlåsningsrisiko” (Lock-in risk). This occurs in smaller bond series with low trading volume. If a borrower wants to redeem a loan in a small series, they might have trouble buying the bonds back at a fair price because there are few sellers. Major mortgage institutes generally ensure their main bond series are liquid to minimize this risk.
Refinancing Bank Loans (Prioritetslån)
Not all housing loans in Denmark are mortgage loans (realkreditlån). Some are bank loans, often called “prioritetslån” or “boliglån.” These are standard bank products funded by deposits, not bonds.
Refinancing a bank loan is simpler than refinancing a mortgage loan. There are no bonds to trade, so there is no Kurs or kurtage. The interest rate is negotiated directly with the bank. However, bank loans typically have higher interest rates than mortgage loans. Borrowers with bank loans often look to refinance a personal loan in Denmark or convert their bank housing loan into a mortgage loan if their property value allows it.
Strategic Timing
The success of a refinance depends on timing. For downward conversions, a rule of thumb is that the interest rate should drop by at least 1.0 to 1.5 percentage points to make the transaction worthwhile. The payback period (the time it takes for savings to cover the costs) should ideally be under 5 years.
For upward conversions, the timing is harder to predict. The borrower effectively shorts the bond market. They sell low-coupon bonds at a low price and hope to buy back high-coupon bonds later at a higher price (when rates fall). This requires active monitoring of the financial markets.
Borrowers should maintain close contact with their financial advisor. Most banks offer monitoring services where they notify the customer when a refinance opportunity arises based on pre-set criteria, such as a specific gain in principal reduction or monthly savings.
Documentation Requirements
To proceed with a refinance application, borrowers must gather specific documents. While much is retrieved digitally via eSkattekort, banks often request:
- Latest 3 payslips: To confirm current employment status.
- Budget: A detailed breakdown of household income and expenses.
- Pension info: Overview of pension savings (via PensionsInfo.dk).
- Property tax ticket: The “Ejendomsskattebillet” showing local taxes.
- ID: Valid passport or driving license and MitID.
Self-employed borrowers must provide more extensive documentation, including audited financial statements for the last two years and a current balance sheet. The assessment for self-employed individuals is stricter regarding income stability.
Negative Equity (Insolvency)
If a property has lost value, the borrower might be “insolvent” regarding the house. This means the debt exceeds the property value. Refinancing is difficult in this situation. Mortgage institutes cannot issue a new loan that exceeds 80% of the current valuation.
If a borrower is trapped in a high-interest loan with negative equity, they cannot switch to a cheaper mortgage loan. In some cases, they might be able to negotiate with their bank to restructure the debt, but this moves the debt from the bond market to a standard bank loan, often at a higher rate. Avoiding negative equity is a primary reason why Danish banks require a down payment and enforce strict amortization rules for high-LTV loans.
Conclusion on Market Mechanisms
The Danish system relies on the balance between borrower and investor. The borrower’s right to prepay creates a unique dynamic. When many borrowers refinance (prepay) their loans, it affects the bond market. Investors receive their money back earlier than expected. This “prepayment risk” is priced into Danish mortgage bonds.
Understanding this ecosystem helps borrowers make informed decisions. It is not just about the interest rate on the paper; it is about the price of the bond, the transaction costs, and the long-term strategy for the household economy. Whether the goal is lower payments, debt reduction, or cash out, the Danish mortgage refinance market offers flexible tools for financial management.
FAQ
Frequently Asked Questions
It is restructuring a realkredit loan by redeeming the old bond-funded mortgage and issuing a new one, often to lower payments, reduce principal, or change rate type.
It makes sense when the expected savings or principal reduction exceeds total costs (kurtage, bank fees, tinglysningsafgift, potential differencerenter) within a reasonable break-even period.
“Kurs” is the bond price behind the mortgage. It drives the cost of exiting and the proceeds of the new loan. Low kurs can enable debt reduction in opkonvertering, while near-100 kurs reduces capital loss on a new loan.
Common costs include bidragssats (ongoing margin), bank establishment/handling fees, kurtage for bond trading, and tinglysningsafgift (often only on any principal increase), plus possible differencerenter if timing is off.
Yes, if the updated valuation supports it and total borrowing stays within the 80% mortgage limit. Equity release triggers a stricter affordability check and can increase total payment and bidragssats.
