Danish homeowners with flexible loans are facing increased interest rates, despite a general trend of falling rates. This is particularly impacting those with F5 loans from Totalkredit, who are experiencing a significant rise after a period of historically low interest rates.

The increase stems from an adjustment at Totalkredit in Nykredit, the country’s largest mortgage credit institution. Homeowners with F5 loans, which have interest rates adjusted every five years, are seeing their rates jump from zero to 2.5 percent starting July 1.

This increase translates to a higher monthly payment and a smaller principal repayment. Totalkredit estimates that the total monthly payment on interest and contributions will increase by 1,554 kroner per month per million kroner borrowed, while the repayment will decrease by almost 900 kroner.

Homeowners with F3 loans will also experience an increase, although a smaller one. Their interest rates are rising from 1.5 percent to 2.25 percent, leading to an increase of 459 kroner per million kroner borrowed in interest and contribution payments. According to a chief analyst at Totalkredit, Sune Malthe-Thagaard, these homeowners are “feeling a new interest rate reality”, even though they are seeing changes with a delay because of the fixed rate.

The lower interest rates previously enjoyed by flexible borrowers helped them navigate a period of high inflation and rising interest rates. Some homeowners with three- and five-year flexible loans have switched to F1 loans with annual interest rate adjustments, likely hoping to switch back when F3 and F5 rates decrease.

Totalkredit anticipates a slight decrease in F5 loan interest rates within a year, but analysts caution against expecting a return to near-zero rates without a severe economic crisis. The more flexible F1 interest rate has already fallen significantly, from 3.82 to 2.26 percent.

Economist Brian Friis Helmer from Arbejdernes Landsbank attributes the falling rates to the European Central Bank’s (ECB) interest rate cuts in response to declining inflation. He suggests that homeowners can mitigate the impact of higher interest rates by adjusting their interest allowance in their preliminary income assessment for the current year.