Mortgages in Denmark: Requirements and Options

Hey - Today I'll tell you everything you’ll ever need to know about getting a loan or mortgage to buy a house in Denmark.

You can see my gigantic guide on buying a house in Denmark here. 

This includes how much money you'll need to put in if you buy a house and answer some of your most common questions.

The Danish System — 5/15/80

To buy a property in Denmark, the minimum you need to put down (the down payment) is 5% of the purchase price. You can put more if you can or want, but you can’t put less. This 5% needs to come from your capital — your savings, family money, etc.

It’s likely that you don’t have the 4m, 5m or whatever millions you need to pay for the house all in cash, so for the other 95% value of the purchase you can borrow from banks and mortgage institutions.

In Denmark, you’re only allowed - by law - to take a mortgage for 80% of the value of the property. These are also called realkredit loans — the “cheap” loans, which used to have just 0% or 1% in interest up to just a few years ago.

If you only put 5% down, and follow the math here, then we’ll have 15% missing - and for that, again, if not out of your own pocket, you can get an extra loan by a bank - the so-called bank loan, which we’ll refer to as the “expensive loan”.

If you’ve the money, you can put the 20% (5% + 15%) yourself, and avoid the expensive loan. You can even put more — 25%, 30%, 40% down if you want, but it’s up to you.

Note — Though by law the minimum downpayment is 5%, if you’re a foreigner, you’ll likely need to put more. Banks are not obliged to give you a mortgage if they don’t want, so for people deemed “risky” - and basically everyone non-Scandinavian can be deemed “risky” in one way or the other by banks here, they could ask you for a bigger downpayment: 10%, 15%, sometimes over 20% as well.

On Realkredit Loans

Let’s now focus on the 80% - the so-called realkredit loans.

In Denmark, you can get two types of mortgages / realkredit loans: fixed interest or variable interest

Fixed Interest Loans

In 2023, the most common fixed loans are the 30 year loan with 5% interest per year. If you get this loan, it means that the interest on your mortgage in 2040 or 2050 will still be 5%, even if the interest rates across the board raised to, say, 10%.

If you want to cover your risk, this is a solid option. I used this setup five years ago, and have a 2% loan now even despite all the rate increases. (Some luckier people even have a 1% loan).

VERY Importantly, you can’t negotiate the interest on these loans. The Danish Mortgage System is complex and special, and these loans are not issued by banks but by something called credit institutes. These institutes issue your mortgage and then sell it in the market as bonds. This means that the debt is not held by a specific bank for all its customers, but by (in theory) a diverse set of investors, which are usually pension funds, hedge funds, etc.

This means that the bonds (and by extent the interest rates) are priced by the market.

This has a lot of complications (and opportunities!) and I made a deep dive into this as part of my toolkit called Dream Home Denmark, link down in the video description.

Variable Interest Loans

If you don't want to fix your interest for 30-years, you can get shorter-term variable-interest loans — fixed for 5 years, for 3 years, for 1 year, or variable per month. The interest on these loans is usually a couple % points lower than the fixed loans: right now, it’s circa. 3,5%.

Thing is, each of these loans have a “reissuing” period, and, when that period is past, the interest rates update to what’s then the new market prices.

So, if you get this loan in 2023, you would pay the same interest for 2024, 2025, 2026 and 2027. But when 2028 comes, your interest rate will update.

You can also do a mix of the Fixed and Variable Interest. You don’t need to get just fixed or just variable — you can also get a combination of both. For example, if you borrow 3m for the realkredit loan, you can borrow 2m with interest rate fixed for 5 years, and 1m with a fixed rate for 30 years.

Is it worth it? You'll end up with an effective interest rate in the middle of both fixed and variable, but at the same time hedging your risk. It's a good option to consider.

Three Must Knows

There are three critical things to note before we finish up.

1) Interest Only Loans

The first note is that in Denmark you can get interest-only loans. This means that you take a mortgage, but only pay interest on the loan and - for the first ten years - don’t need to repay the bank.

This used to be incredible with 0% or 1% interest rates. It made taking a mortgage almost be like free money. But is less interesting now when the interest costs add up.

I explained this in more detail in the video here.

2) The Bidragssats - The Catch

The bidragssats are like an admin fees set by the credit institutions. For a fixed 30-year loan without repayments, this fee is around 1% per year.

This means that even if the interest rate on your loan is 0%, your effective rate — what you’ll need to pay every year as “interest” — will be more than 1%. There’s no way around this. (Or, if you know a way around this, please let me know!)

How much bidragssats you’ll need to pay depends on four factors:

• a) from which bank and credit institute you borrow
• b) how much of the value of the apartment you need to borrow
• c) if you took repayments or no repayments
• d) what type of loan you get

3) - Mortgage Tax Deduction

The third and final note is that in Denmark, you’re allowed to deduct 33% off the annual mortgage interest cost from your income taxes. This means that if your interest rate is 6% (including bidragssats), your effective — and now final interest rate will be around 4%, as 6% * 66% = approx. 4%.

You’ll still PAY 6% to the bank. But you’ll get that 2% back as an effective post-taxes salary/income raise.

This is the difference between the “brutto” and “netto” monthly costs. Brutto are the costs before this deduction, and netto are the costs after the deduction. In the long run, this can sum up to a lot of money.

AND - That’s it. If you want to deep dive more into this topic, check Dream Home Denmark, and in the meantime, while you’re here check this video out where I tell you the TOP House Buying MISTAKES to avoid.