Home loans in Denmark: An overview

In this article, we'll cover the different types of home loans in Denmark to help you determine which option is best for you.

Different types of home loans in Denmark

As in many other Western countries, the Danish loan market offers many options. Different types of loans offer varying interest rates, repayment terms, and down payment requirements. All of these factors can significantly impact the overall cost of the home and your ability to make monthly payments. By understanding the various loan options, you can make informed decisions and find the best fit for your financial situation.

Below, we will give you a quick run-through of Denmark's most common types of loans.

Mortgage loans in Denmark

When you buy a home in Denmark, the purchase is usually financed by a mortgage loan and, in some cases, supplemented by a bank loan. The property then serves as collateral for the loan. As a loan taker, you make monthly payments to the bank, including interest and amortisation, until the loan is fully paid off. 

When applying for a mortgage, you can choose between a fixed and floating interest rate. The fixed-rate remains the same throughout the loan (or for a specified period). The floating rate, on the other hand, changes based on the development of the market. 

Which type of rate you should choose depends on which one you predict to be the cheapest over time. To lower the risks, some house buyers choose to have half their loan at a fixed rate and the other half at a floating rate. 

As a general rule, you can borrow up to 80% of the property's value when you take out a mortgage loan in Denmark. In Denmark, it’s also common to make a down payment of at least 20% of the house’s value. However, you can find banks that have lower down payment requirements.

If you want to borrow more than 80% of the property's value, you can supplement your mortgage loan with a bank loan. A bank loan, however, is more expensive than a mortgage loan, and many loan takers, therefore, prefer to pay as large a down payment as possible. 

Co-operative housing loans in Denmark

A cooperative housing unit, typically an apartment or terraced house, is a special type of housing fairly widespread in large towns and cities in Denmark, such as Copenhagen and Aarhus. The residents own the property jointly. This means that when you purchase a unit, you acquire an exclusive right of use to a unit — e.g. an apartment — as well as a share of the assets and liabilities of the cooperative housing society.

To buy a cooperative housing unit, you need a special co-operative housing loan with your bank, secured on the unit. You must also pay a down payment, the size of which depends on your financial situation. The minimum down payment, however, must amount to 5% of the purchase price.

Before deciding on a co-operative housing unit, you should note that the finances of the co-operative housing society are not always transparent. We, therefore, recommend that you seek advice from a lawyer or a buyer’s agent, such as Bomae, before you make your choice.

How to apply for a loan in Denmark

Applying for a loan to buy a house in Denmark is not always straightforward. However, some steps are most likely to be the same regardless of your loan type. If you would like someone else to handle your loan application process, we are more than happy to assist. Please read about our services here. 

Gather documents

Once you have researched and found the best bank for your needs, it is time to gather all the documents for the upcoming application. You must provide proof of income, employment, and a good credit history to apply for the loan. Furthermore, you may also provide other documents, such as identification, bank statements, and tax returns.

Submit your loan application

You can submit your loan application when you have all your documents in order. This can be done online, over the phone, or at your bank’s local branch. When the bank has received your application, they will assess your creditworthiness and ability to repay the loan. This may take a while, depending on what bank it is. 

Review your loan offer

Supposing the bank approves your application,  the next step is to review the offer. Typically, the loan offer includes the loan amount, interest rate, repayment plan, and other conditions. It’s important to carefully review the offer to ensure that it corresponds to what you and the bank have agreed upon.

Sign the loan agreement

If you are happy with the loan offer, all that remains is for you to sign the loan agreement. The agreement usually contains an outline of the terms and conditions. Good to know is that when you finance a property purchase by loan in Denmark, the amount is generally transferred directly to the seller without making a stop at your account. So, don’t be scared if your balance doesn't change as expected. 

Naturally, the loan process can look very different depending on your chosen loan and bank.

That is why we always recommend you consult a professional agent with expert Danish real estate law knowledge.