COPENHAGEN, Denmark–While inconceivable to many Americans, a Danish bank has introduced a new mortgage with a negative interest rate. In other words, borrowers pay less on the mortgage than the amount borrowed, not including one-time fees.
Denmark’s Jyske Bank has begun offering home buyers 10-year mortgages at an interest rate of -0.5%.
According to the Washington Post and MSN.com, “this highly unusual condition may be good for Danish home buyers, but economists say it’s an alarming sign for the global economy. Several major governments and more than 1,000 big companies in Europe are now able to effectively borrow from global financial markets at a negative interest rate. For Jyske Bank, that means it can turn around and lend money at a subzero interest rate, too.”
The report added, “The sudden increase suggests that a fast-rising share of investors are so nervous about the future they’re willing to actually lose a little money by lending it to a borrower that is almost certain to pay it back, rather than risk betting on something that could go bust. In a healthy economy, investors would put their money to work in profit-making ventures such as factories or office buildings.”
‘Absurdly Odd World’
Daniel Alpert, managing partner at Westwood Capital, told the Washington Post, “It’s an absurdly odd world and it signals two things. There’s an obvious, persistent and continuous glut of underutilized capital and there’s no place in the advanced world for that capital to be invested without excess risk.”
According to Deutsche Bank Securities, outside the United States, 43% of bonds are trading at a negative interest rate, up from 20% late last year.