On this page we present what a home loan is. The purpose is to create knowledge of mortgage loans and give an overview of the different loan options. We explain, among other things, what the difference between a traditional home loan and a cooperative housing loan is, and what costs you can expect in connection with the loan.
Therefore, if you are considering buying a home or just want to get more information on the subject, you have come to the right place.
WHAT IS A HOUSING LOAN
A home loan is a special loan that you can borrow to buy a home. A home loan can be used both for a bank loan that is used to buy either a homeowner or a cooperative. In this article we will guide you to choose the best loan offer when you go out and buy a home.
A HOUSING LOAN HAS MORE MEANINGS
A home loan is, as we mentioned above, a loan that you take in order to buy a home. In Denmark, you can both borrow to buy a home or a cooperative. If you buy a cooperative, you will only call it a cooperative housing loan. The reason for this difference is closely linked to how to finance home purchase in Denmark.
HOW TO BUY AN OWNERSHIP
Unlike in many other countries, we finance our home purchase in a very unique way in Denmark. If you want to buy a home for DKK 2 million, you can raise 80% of the borrowed amount via a mortgage credit institution and another 15% via a bank. The last 5% of a possible purchase sum must be included in the form of a savings yourself.
The 15% of the total loan amount to be borrowed through a bank is what most people think when they say ‘mortgage’.
This means that financing a home for DKK 2 million will look like this:
· Mortgage credit of 80% of the loan amount: DKK 1,600,000.
· Bank loan of 15% of the loan amount: DKK 300,000.
· Savings of 5% of the loan amount: DKK 100,000.
The special thing about this type of financing is that you get incredibly cheap financing through the mortgage-credit institutes, as the price of a mortgage-credit bond is based on supply and demand for Danish bonds on the international markets. Here, investors will often look for safe investments, and here Danish mortgage bonds are considered very safe investments.
The increased demand therefore means that as a nation we get very low interest rates on our mortgage loans, which makes it relatively easier to finance our home purchases. In 2019, the lowest interest rates have ever been offered on 30-year mortgage loans with an interest rate of as low as 1.5%.
But besides the mortgage loan, most people also need to take out a bank loan to finance the last 15% of their home. However, interest rates on these loans are considerably higher than on a mortgage loan, as they act as a regular bank loan. Therefore, most Danes prioritize repaying this debt as quickly as possible in order to minimize their interest expenses.
WHAT IS A GOOD INTEREST ON HOUSING LOANS?
The interest rate on a mortgage loan – understood as the bank loan of the 15% of the purchase price – is, as mentioned, often significantly higher than the interest rate on your mortgage loan. The reason for this is that in this case the bank only receives the second priority mortgage in the home.
This means that if you as a homeowner suddenly cannot pay your monthly allowance and thus pay off your debt, the mortgage-credit institution has, first and foremost, the right to sell the home and thus cover its possible loss. The bank must therefore, so to speak, wait for the mortgage bank to have received its money before they can get their money back.
All things being equal, this means that the bank has a greater risk in connection with the purchase of housing than the mortgage-credit institution, which is reflected in the interest rate.
WHAT COSTS A HOUSING LOAN TOTAL SET
But even though interest rates are an important parameter for your home loan, it is far from the only thing you need to keep an eye on when you need to get out and obtain loan offers. When you take out a loan, especially a mortgage loan, there are a large number of other costs that you have to pay in addition to the loan amount itself and the additional interest.
Some of these extra expenses include:
· Loan processing fees
· Land Registry Service
· percentage Charges
Since a home loan can have a maturity of up to 30 years, these current costs can significantly push up the overall price of your home loan. Therefore, as mentioned earlier, many choose to deduct more on their home loans, so that it can be paid out on eg. 7, 10 or 15 years.