Different types of loans in Denmark
As in similar countries in the West, the Danish loan market offers a wide range of loans. In this section, we will give you a short runthrough of the most common types of loans.
Mortgage loans in Denmark
In Denmark, mortgages work similarly to other countries. A mortgage is a loan that you take out to purchase an apartment, a house or another type of property. The property then serves as collateral for the loan. As a loan taker, you make monthly payments to the bank, which include both interest and amortization, until the loan is fully paid off.
When applying for a mortgage, you have the option of choosing between a fixed and floating interest rate. The fixed-rate remains the same throughout the loan (or for a specified period of time). The floating rate, on the other hand, changes based on the development of the market.
Which rate type you should choose depends on which one you predict to be the cheapest over time. To lower the risks, some house buyers have chosen to have half their loan at a fixed rate and the other half at a floating rate.
In Denmark, it’s 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.
Home equity loans
The home equity loan (A.K.A second mortgage loans) allows homeowners to borrow against the equity they have built up in their property. Home equity is the difference between the property’s market value and the outstanding balance on any mortgages or liens against it. Unless you already own a house or apartment in Denmark, this is not a suitable loan option for you.
In Denmark, people commonly use home equity loans to finance home improvements and property investments. Typically, the loan is structured as a separate loan from the original mortgage and secured by a second lien on the property.
Home equity loans typically have a fixed interest rate and a set repayment term.
Personal loans
Personal loans in Denmark are unsecured loans that allow you to borrow a specific amount of money for a set period of time. Due to the lack of collateral, there are no restrictions on what you can use the money for.
In Denmark, personal loans are typically offered by banks and other financial institutions. The loan amount and interest rate are based on the creditworthiness of the borrower. However, most banks have a limit between 350 000 and 500 000 DKK. Personal loans may have a fixed or floating interest rate, and the repayment term is usually between 1 and 10 years.
To apply for a personal loan in Denmark, you need to provide proof of income, employment, and a good credit history. The bank will assess your creditworthiness and ability to repay the loan before approving or denying the loan.
Compared to credit cards or other forms of borrowing, Danish personal loans usually have lower interest rates. However, they also typically have stricter repayment terms.
