An interest-only period on a mortgage loan means that, for a time, you pay only interest and contribution. You do not repay the loan itself during that time, so the outstanding debt does not fall.
You often come across the term when you look into loans or receive offers from the bank. This article explains what an interest-only period means in practice. This is not specific advice for your situation, only an explanation of the mechanisms and typical considerations.
The figures in the examples may change over time. Use this article to understand how an interest-only period affects your debt and your monthly payment. Take your own questions to your mortgage lender or bank and get figures for your own solution.
Danish rules on interest-only periods and lending limits
The rules on interest-only periods on mortgage loans are set out in the Danish Mortgage Credit Loans and Mortgage Credit Bonds Act (LBK no. 1541 of 18 November 2025). Section 4(2) sets the ceiling: an ordinary mortgage loan for an owner-occupied home can be interest-only for no more than 10 years during the term of the loan. Some lenders do, however, offer special loans with a longer interest-only period on the part of the loan that lies within 60 % of the home’s value.
Section 5 sets the lending limits: for owner-occupied homes for year-round use, the mortgage loan can be no more than 80 % of the property’s value (subsection 1), and for holiday homes 75 % (subsection 2). This is not necessarily the sale price or the most recent public valuation, but the value the mortgage lender sets when the loan is taken out.
These are the maximum limits in the law. Your mortgage lender is free to set stricter requirements or shorter periods than the maximum. Check the specific terms with your lender.
The rules change. If you want to be sure of the current requirements for interest-only periods and lending limits, you can look up the law on Retsinformation, the official portal for laws and executive orders in Denmark.
Once the framework is in place, it becomes easier to see what it means in actual kroner. The next section shows a concrete worked example.
What does an interest-only period cost? A worked example
The prices here are for illustration only, not an offer or personal advice. Your final price depends on terms, credit assessment and the market.
Consider a mortgage loan of 2.000.000 kr. at a fixed interest rate of 4,0 % a year over 30 years. You choose a 10-year interest-only period, during which you pay only interest and contribution. The contribution rate is about 0,9 % a year, which corresponds to Totalkredit’s total rate for a fixed-rate loan with an interest-only period at 80 % loan-to-value (price sheet as at 1 July 2026).
For the first ten years, this means:
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Annual interest and contribution costs: approx. 98.000 kr.
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That is about 8.167 kr. a month.
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The outstanding debt does not fall during this period; it still stands at 2.000.000 kr.
When the interest-only period expires after ten years, the loan must be repaid over the remaining 20 years together with interest and contribution. That gives a monthly payment of about 12.120 kr. for interest and repayment. On top of this comes the contribution, which falls to about 0,74 % a year once the interest-only surcharge falls away (Totalkredit’s price sheet as at 1 July 2026). That is about 1.230 kr. a month at the start, so the total payment comes to about 13.350 kr. before tax.
The difference in the payment arises because you then pay both interest and contribution and at the same time have to repay the whole debt over 20 years instead of 30. It often feels good to be free of repayments at the start, but later there is a clear rise in the payment, so do the sums carefully before you choose an interest-only period.
Contribution rate with an interest-only period and other costs
The contribution on your mortgage loan is the payment to the lender for administration, capital and risk. It comes on top of the interest on the bonds. The contribution rate therefore makes up a large part of your total borrowing costs. The contribution varies according to, among other things, loan-to-value ratio, loan type and interest-only period. If you choose an interest-only period, the lender charges more for the higher risk, because the outstanding debt does not fall during the period.
The payment seems lower when you pay only interest and contribution, but the difference from a payment with repayments is often smaller than many expect, because the contribution rate rises with an interest-only period. The outstanding debt does not fall during that period either. This can matter later, when repayments return, or if the home is to be sold or remortgaged.
If you want to know the exact contribution rate for your loan, check the price list or fee overview at your mortgage lender. The information is usually available online.
The contribution is calculated on the outstanding debt and paid at each instalment date. With an interest-only period, the basis does not fall, and so the contribution in kroner does not fall during the period either. Overall, this gives a higher contribution during the period than on a loan with ongoing repayments.
In addition to interest and contribution, you should allow for other costs. These include set-up costs when the loan is arranged and brokerage on trading the bonds. On top of this comes the registration fee, which in 2026 is 1.825 kr. plus 1,25 % of the amount secured by the mortgage. Get the official price and fee overviews from your mortgage lender and the relevant authorities for a full picture.
When the interest-only period ends, the payment typically rises
When the interest-only period ends, your monthly payment often changes markedly. Consider a loan of 2 million kr. after ten years without repayments. You still owe the full amount, and now it has to be repaid over 20 years. That lifts the payment sharply, even though the interest rate is the same and the contribution rate falls slightly.
With an interest rate of around 4 % and a contribution of about 0,74 % (without the interest-only surcharge), the monthly payment starts at around 13.350 kr. before tax. That is far above the roughly 8.167 kr. you were used to during the interest-only period. The change hits from one instalment to the next and feels like a shock.
Consider starting to repay a little early, if your mortgage lender allows it. Small repayments well in advance spread the burden over several months or years. The transition becomes gentler, and because the outstanding debt falls sooner, you also save interest and contribution. Ask your lender whether there is a fee for opting out of the interest-only period or making extra repayments.
If you have a variable interest rate, the payment also follows the market rate up or down. With a fixed rate, the jump is mainly because repayments start after the interest-only period.
Check early in the loan’s term when your interest-only period ends and how long the remaining term is afterwards. See your loan documents or annual statements from the lender.
Without planning, you risk financial pressure. A large rise in the payment can put a heavy strain on your personal finances, especially if your income has not grown since the loan began.
Typical situations where interest-only periods are used
An interest-only period gives a break from repayments when your finances change for a time. For example, during parental leave, studies or a change of job, you pay only interest and contribution. This gives you breathing space in your budget while your income is lower.
If you are changing homes and briefly own two properties, an interest-only period can ease the pressure. You avoid making repayments on two loans at the same time, provided you pass the credit assessment.
Many people also use an interest-only period to free up money for renovation or energy improvements at home. That leaves room for larger expenses without extra pressure from repayments here and now.
Some prioritise more expensive debt first, for example consumer loans with a high interest rate. By paying only interest and contribution on the mortgage loan for a while, you can speed up the repayment of the expensive debt. Be aware, though, that an interest-only period typically makes the mortgage loan more expensive overall, because you pay interest and contribution on the whole debt for longer.
For self-employed people with fluctuating income, an interest-only period can help cash flow in quiet periods or during unexpected swings. The option always depends on the lender’s credit assessment.
These are examples, not recommendations. The decision should be based on your own finances. Talk it through with advisers at your bank or mortgage lender before you choose an interest-only period.
Risks and long-term effects you should know about
If you choose an interest-only period on your mortgage loan, your equity grows more slowly than with a loan with repayments. Without repayments, your equity increases only if house prices rise or if you make extra repayments on the loan yourself. Your financial security in the home therefore does not strengthen as quickly.
If house prices fall, you become more exposed. The outstanding debt does not fall during the interest-only period, so falling prices eat more quickly into the equity you have built up, sometimes all the way down to zero or negative equity. This increases the risk of financial pressure and makes it harder to get out of the loan without a loss.
If the home has to be sold during a period of falling prices, you risk still owing money after the sale. If the sale price does not cover both the outstanding debt and costs such as registration and the estate agent’s fee, you are left with an amount that still has to be paid. Many people do not think enough about this risk when choosing an interest-only period.
Sensitivity to interest rates is also important, especially with a variable rate. Since the outstanding debt does not fall in the interest-only period, an interest rate rise hits the entire debt. This makes the loan more expensive and can mean a markedly higher payment, both during the period and when repayments begin. The total financial burden therefore often ends up larger than expected.
The contribution rate is often higher on loans with an interest-only period than on loans with repayments, especially on the part of the loan that lies above 60 % of the home’s value (price sheets from Totalkredit and Realkredit Danmark, 2026). The reason is the higher risk to the mortgage lender when the debt does not fall steadily. The increased rate lifts your monthly costs throughout the period.
Psychology plays a part too. A low payment now makes it easy to overlook the higher total costs later. Go through your budget thoroughly and draw up a schedule for the whole term of the loan, and you minimise the risk of unpleasant surprises.
How to check the rules, prices and terms for your loan
Start with the legal basis when you want to understand the rules on interest-only periods on mortgage loans. On Retsinformation you can search for “Lov om realkreditlån og realkreditobligationer m.v.” (the Mortgage Credit Loans and Mortgage Credit Bonds Act) and read sections 3-5. They set out the framework for term, interest-only periods and lending limits, so you avoid guesswork and loose assumptions.
Look at your own loan documents too. The annual statement or loan overview shows the remaining term, when any interest-only period ends, and the contribution rate on each loan. These figures give a clear overview of your fixed costs and obligations.
Check the price overviews at your mortgage lender under contribution rates and fees. Some show the difference in price with and without an interest-only period. This makes the costs more concrete for your particular loan. If you want to dig deeper into interest rates and the market, use the Danmarks Nationalbank statistics bank for average mortgage interest rates. Finans Danmark also publishes statistics on mortgage credit and the housing market.
The most important part is the conversation with your own lender. Credit assessment and terms depend on your situation, so ask for a written overview with scenarios both with and without an interest-only period. That makes the choice easier to understand and compare.
This article is for guidance only and does not replace personal advice or specific offers. Your decision depends on your finances, time horizon and risk appetite.
Take control of your housing finances. Look into the rules thoroughly and talk openly with your lender, and you will be better prepared for the decisions ahead.
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