Imagine a mortgage payment that stays the same every month. No guesswork, no swings. That is the idea behind a fixed-rate mortgage loan.
With a fixed rate, you know exactly what you will pay each month, whatever the market gets up to. Many people choose it as a financial safety net, because stability makes everyday life calmer. You can plan your budget, pay your bills on time and still have room for a little leisure time without worrying.
The loan is based on bonds with a coupon rate that does not change for the whole term. Typically, you borrow up to about 80 % of the home’s value through realkredit (Danish mortgage credit) and cover the rest with a bank loan or savings. The fixed rate is often higher than current variable rates, but it shields you from future rate rises and unexpected jumps in your payment.
Your monthly payment is made up of three parts: interest, repayments and a contribution (bidrag) to the mortgage lender. Together they determine what you pay each month. On top of that comes the price (kurs) of the bonds behind the loan. The price determines how much you receive relative to the debt on the loan, so it affects your actual financing and your overall finances.
You choose the term, typically 10, 20 or 30 years. A short term means faster repayment of the debt and a higher payment. A long term gives a lower payment, but you pay interest for more years. A major Danish advantage is the right to convert. You can pay off the loan at a price of 100 and refinance when the market changes. You do, however, pay the usual fees for paying off the old loan and setting up a new one.
This guide explains the mechanics behind fixed-rate mortgage loans and the situations you are likely to encounter. It gives you an overview so you can more easily judge whether this solution suits you. It is not a substitute for personal advice.
How a fixed-rate mortgage loan works
When you take out a fixed-rate mortgage loan, the lender funds your loan by issuing and selling bonds. The money investors pay is passed on to you, secured by a mortgage on your home. The coupon rate on the bonds sets the loan’s nominal interest rate. That is the fixed percentage of the outstanding debt you pay in interest each year.
The overall interest rate does not depend on the coupon rate alone. The price of the bonds and the loan’s fees also play a part. The price fluctuates over time. If the price is below 100 when the loan is paid out, the effective interest rate will be higher than the coupon rate. If you want to pay off the loan early, you do so either by buying back the bonds at the market price or by giving notice to redeem at a price of 100, typically on an instalment date (termin).
The contribution rate (bidragssats) is an extra payment to the mortgage lender. It depends on, among other things, your loan-to-value ratio. A high loan-to-value, for example 60-80 %, often means a higher contribution rate. The lender can change the rate over time.
Many loans offer an interest-only period of up to ten years. This lowers the payment temporarily but increases your total interest costs over the whole term. In Denmark you typically pay instalments every quarter, that is four times a year. Keep track of both the nominal interest rate and the annual costs when you draw up your budget.
The outstanding debt falls steadily as you make repayments. On a 30-year loan, the repayment at the start is often lower than the interest. This is due to the annuity profile, in which the repayment share rises gradually over the years.
Interest costs and contributions are tax-deductible under the current rules. Your net payment therefore depends on your tax situation and can end up lower than the gross payment.
10, 20 or 30 years at a fixed rate – what is the difference?
Choose the term based on the room in your monthly budget and how much interest you are prepared to pay over the whole period. A 30-year fixed-rate loan gives low payments now but a high total interest cost. A 10-year loan gives high payments, but you become debt-free faster and pay less interest in total. A 20-year loan sits in between.
The outstanding debt falls faster on short loans. On a 10-year annuity loan, the principal comes down quickly, around ten per cent a year on average, so the outstanding debt shrinks markedly after just a few years. On a 30-year loan, the repayments are spread over a longer period. At an interest rate of around 4 %, you repay less than 2 % of the loan in the first year. The interest rate is often slightly lower on shorter terms, because investors get their money back sooner.
Cash flow now or lower costs later. A 30-year loan frees up money for everyday life, which gives you breathing space in your budget. The price is that you pay more interest overall. A short loan squeezes your finances every month but saves money over time.
Flexibility also depends on the length of the loan. Long loans give you the option to convert for many years, which is valuable when interest rates move. Short terms carry a lower price risk when the loan is taken out and are less affected by market swings from the start.
Interest-only periods are often used on long loans to create temporary room in your finances. If you have chosen a loan with the option of an interest-only period, you can switch it on when unforeseen expenses arise without refinancing the loan, provided your finances allow it. The total costs do rise, however, because the repayments are postponed.
When you refinance, you need to calculate the cost of switching. Fixed fees and brokerage come on top of the bond price. The shorter the remaining term, the harder it is to recoup the cost through a lower payment or a better interest rate.
If you compare two loans with the same principal, the difference is clear. The payment on a 20-year fixed-rate loan is higher than on a 30-year loan all the way through, but after ten years the outstanding debt is considerably smaller on the 20-year loan.
What does a price below 100 mean on a mortgage loan?
A price below 100 on a mortgage loan is about the price of the bonds behind the loan. The price shows what is paid for every 100 kr. of debt. If the price is 98, you receive only 98 kr. for every 100 kr. you borrow. It may seem odd, but bond prices fluctuate with interest rates and the market.
If you take out a loan at a price below 100, you receive less than your nominal debt. The difference is a price loss (kurstab). You do not receive it, but you still have to repay the whole debt, which is why the effective interest rate ends up higher than the coupon rate.
The price depends on several things, including the difference between the market rate and the coupon rate on the bonds, as well as the remaining term. If your fixed rate is above the market rate, the price will often be closer to or above 100, because investors are happy to pay more for a higher fixed rate.
A low price when you take out the loan can be an advantage later. If interest rates rise, the price can fall further, and you can then pay off the loan more cheaply by buying back the bonds. If rates fall, you can always redeem the loan at a price of 100 for the usual fees. That gives you flexibility when decisions about your finances have to be made.
Take a loan of one million kr. at a price of 97. The payout is 970.000 kr. before costs, while the debt is still one million. Interest is paid at the coupon rate, and the price loss is reflected in the effective interest rate over the years.
When you pay off a loan early or refinance, you can either buy back the bonds at the current market price or give notice and redeem the loan at a price of 100. If the price is below 100, buying back is cheapest. If it is above 100, you give notice, so you never pay more than a price of 100.
If you want more certainty about your budget, consider price hedging (kurssikring). For a fee, the payout price can be locked in before you take out or refinance the loan. You then know in advance the amount you will receive.
Conversion in practice – when and how to refinance
If interest rates fall, it can pay to switch to a loan with a lower coupon rate and get a smaller payment or become debt-free sooner. This is called down-conversion (nedkonvertering). In practice, you refinance your mortgage loan into a new one on better terms. If, on the other hand, rates rise, up-conversion (opkonvertering) becomes relevant. You switch to a loan with a higher coupon rate, and because the price of the old bonds has fallen, you can pay them off more cheaply, so your outstanding debt becomes smaller. The trade-off is that the interest rate on the new loan is higher, so the payment typically rises.
Giving notice to redeem at a price of 100 is the usual route when the price is above 100. You give notice on the loan no later than two months before the instalment date and pay only the normal redemption costs. If you do not want to wait for the instalment date, you can instead buy back the bonds at the current price or redeem at a price of 100 straight away, in return for paying interest up to the instalment date.
There are always costs. Mortgage lender fees, brokerage on buying and selling bonds, and the land registration fee (tinglysningsafgift): the fixed fee and the percentage fee on the part of the new mortgage that exceeds the old one. If you pay off the loan outside an instalment date, differential interest (differencerente) may be added as payment for early redemption. Include it all in your calculations and weigh it against a lower interest rate and a possibly lower outstanding debt.
Timing and figures matter a great deal. When will the savings from lower payments have paid for the refinancing? How long will you keep the loan after the switch? How much risk of further interest rate movements are you willing to take? Many people give notice to redeem on the instalment date, because that is cheapest when the price is above 100. Others redeem immediately and pay more for the flexibility.
Some homeowners down-convert several times. Refinancing several times over the years as rates fall again can give a lower payment each time. Repeated refinancing does, however, cost time and money in administration and fixed fees, so weigh the gain carefully against the effort.
This flexibility comes from the Danish rules for fixed-rate loans and the right to redeem at a price of 100 for known costs. It lets you manage your debt actively through conversion.
Why can your outstanding debt fall when interest rates rise?
When the market rate rises, the price of your fixed-rate mortgage bonds falls. The cost of buying back the bonds becomes lower than the nominal value of your outstanding debt. Your debt still stands at the same amount on paper, but you can pay off the loan more cheaply when the price is below 100. The difference between the outstanding debt and the amount needed to close the loan now is called a price gain or a reduction in outstanding debt.
Take a loan of one million kr. at a price of 90 after a rise in interest rates. You can buy back the bonds for about 900.000 kr. Your debt falls by around 100.000 kr., before fees, any price loss on the new loan and tax. When you up-convert to a new loan with a higher coupon rate, you lock in the new, higher rate, and at the same time you benefit from the lower redemption price on the old loan. This does not necessarily mean lower monthly payments straight away. The payment often rises because the interest rate is higher. The gain lies in a smaller total debt.
If interest rates fall again later, you have the option of down-converting to a lower rate based on the lower outstanding debt from the up-conversion. This gives you more chances to fine-tune your finances over time. Prices can move quickly, so price hedging can be useful if you want to protect yourself against price swings between the loan offer and the payout. Price hedging costs extra.
Do not focus only on the difference in price. Include tax and all the costs of refinancing. The overall effect depends on your time horizon and personal situation. No one can promise a gain.
What does a fixed-rate mortgage loan cost?
To judge the cost of a fixed-rate mortgage loan, you need to look at more than the fixed rate. The coupon rate is set out in the agreement and does not change. The effective interest rate also takes account of the price of the bonds. If the price is below 100 when you take out the loan, you receive slightly less than your debt, so the real interest rate ends up higher.
The contribution is an ongoing payment to the mortgage lender that covers, among other things, administration, capital and the risk of losses. It is calculated on the outstanding debt, and the rate depends on the loan-to-value ratio: a high loan-to-value means a higher contribution. If you choose an interest-only period, the contribution rate is often higher during that period, so your payment falls by less than the repayment you save.
There are also one-off costs. The set-up fee when the loan is arranged is typically a few thousand kr., depending on the lender. Brokerage is the cost of trading the bonds behind the loan, typically 0,15 % of the market value, or around 1.500 kr. per million borrowed. The price spread (kursskæring) is a deduction from the price at payout, typically 0,20-0,25 price points, and a price premium may be added when you pay off the loan. Check the current rates with your mortgage lender.
The land registration fee has two parts: a fixed fee of 1.825 kr. and 1,25 % of the amount secured by the mortgage when the mortgage is registered (2026 rates). When you refinance without changing the size of the mortgage, normally only the fixed part is paid.
You get an accurate overview from the APR (ÅOP), the annual costs expressed as a percentage. The APR combines both ongoing costs and one-off costs spread over the whole term. This makes comparison easy when loans have the same term and amount, so a low starting payment does not hide high total costs.
The price spread and changes in the contribution rate affect the total costs more than many people expect. The effect becomes clear if you choose flexible solutions such as an interest-only period, or refinance several times over the years.
Get price lists from the mortgage lenders before you decide, and use online loan calculators to estimate both the monthly payment and the total cost of your loan. Checking the figures in advance helps you avoid surprises.
Fixed or variable rate – how to weigh up the choice
Choosing between a fixed and a variable rate on a mortgage loan comes down to how much fluctuation in your monthly payments you are willing to accept. With a fixed rate, you know the payment for the whole term of the loan. A stable amount gives peace of mind, especially if your budget is tight or you expect to stay in the home for a long time.
Variable rates often start lower than fixed rates, but they follow the market more closely. Loans such as F-kort, F3 and F5 get a new rate every six months or every 3 or 5 years, normally with no cap on increases, so your payment can go both up and down. That appeals to some people with a high appetite for risk and a short time horizon, because lower rates feed through faster than on a fixed-rate loan.
You can also split the loan into several loans with different types of interest rate and so spread the risk. That takes a clear overview, because you end up with several payment streams and need to keep an eye on the total costs. A single amount each month is easier to manage.
Run a stress test before you decide. Work out your budget if the interest rate rises by two to three percentage points. Could you still pay all your bills without cutting back on essential spending? If the answer is no, that points towards a fixed rate for more security.
Inflation also plays a part. A fixed rate works as insurance against rising interest rates, and it is especially worth having if your pay does not keep up with prices. High inflation erodes the real value of debt over time, but it often also leads to higher interest rates, and you feel that sooner with a variable rate than with a fixed one.
Fixed-rate loans have an extra advantage: the conversion right. You can always pay off the loan at a price of 100 when interest rates change significantly, for the usual fees. Variable-rate loans rarely offer the same option.
The decision should rest on how long you expect to stay in the home, your tolerance for risk and your need for stable outgoings, rather than on short-term savings. It is about your finances and your circumstances, not just product names.
When a fixed rate makes sense, and what to do next
A fixed-rate loan is a good fit if you want a stable budget and a fixed plan for repayments. The payment is often higher at the start than with a variable rate, but in return you know what you will pay each month throughout the term.
The term matters a great deal. 10 years means paying off the debt faster with a higher payment. 30 years means a lower payment now and more interest over time. Match your choice to your financial headroom and your plans.
The price when you take out the loan affects your effective interest rate. A price below 100 means a price loss when the loan is taken out. However, the Danish conversion right gives you options to refinance later. Refinance to a lower rate when rates fall, for a lower payment. Refinance to a higher rate when rates rise, for lower outstanding debt. Always factor in the costs and fees of refinancing.
You can reduce your outstanding debt the most by refinancing when market rates rise and the price of your bonds falls. The gain lies in lower total debt, not in a lower payment straight away. Contribution rates and other costs make up a large part of the total price. Use official price lists and online calculators to estimate the APR and the expected payments.
Torn between fixed and variable? Test your budget against interest rate shocks in several scenarios. Choose the solution that gives you peace of mind day to day, without locking yourself into a product too early.
The next step is practical. Get the current bond prices, price lists and standard terms from the mortgage lenders. Compare scenarios in loan calculators using your own figures, so you avoid unpleasant surprises. Talk to your lender or an adviser about the limits and conditions.
Understanding the mechanisms gives you more control, so you can make decisions based on facts rather than guesswork.
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