Danish homeowners exploit higher rates to cut loans, combat inflation

Danish homeowners are taking advantage of higher interest rates to refinance their mortgage debt, allowing them to bring down their loans and cash out gains to win some much-needed savings amid high inflation, the Danish central bank said on Thursday.

Danish homeowners are taking advantage of higher interest rates to refinance their mortgage debt, allowing them to bring down their loans and cash out gains to win some much-needed savings amid high inflation, the Danish central bank said on Thursday. Around 21% of all outstanding fixed-rate mortgages in Denmark were refinanced in the period between January and September last year, the central bank said in a report on Thursday, a period during which interest rates rose rapidly.

Central banks across the globe have raised interest rates in efforts to combat soaring inflation, a move that puts a damper on economic activity. But on the positive side, Danish homeowners can take advantage of rising interest rates to refinance their loans, essentially buying back their mortgage at a discount, cutting their debt or cashing out the gains.

On average, fixed-rate mortgage borrowers in Denmark were able to buy back their existing mortgages at a 18% discount, according to the central bank. Almost 38% of those who refinanced their fixed-rate mortgages cashed out the gains instead of bringing down their loans. Many of those were already cash-strapped prior to the refinancing, according to the central bank.

"This may indicate that the cash extractors are already liquidity constrained or expect to be so in the near future, and cash extraction can therefore support their consumption over the coming years," it said.

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