Fixed or variable rate: monthly payment, bond price and outstanding debt explained

The choice also affects how much your monthly payment (ydelse) can change, how your outstanding debt (restgæld) can react to the market, and what it can cost to get out of the loan if you sell or remortgage.

The bond price (kurs) is an important part of the difference. When you take out the loan, it affects either your proceeds (provenu), your nominal debt or the interest rate charged on the loan. When you redeem the loan, it affects how much must be paid to close it.

In brief

• A fixed-rate mortgage loan (realkreditlån) has a fixed bond rate throughout its term.
• A fixed rate does not mean your total housing payment is locked. The administration margin, fees, taxes, insurance and utilities can change.^[1]
• A variable-rate loan gets a new rate according to the product's terms. That can be every six months or with several years in between.
• F-kort and F1, F3 and F5 are not the same. They have different mechanisms for rate changes and refinancing.
• On a bond loan, a price below 100 means you receive less per 100 kr. of nominal debt.
• On a cash loan, you receive the agreed cash amount, while the bond price is built into the cash loan rate.
• A fixed-rate, callable loan can normally be redeemed at price 100 on a payment date (termin) or repaid at the market price.^[3]
• An adjustable-rate loan (tilpasningslån) is normally repaid at the market price between rate adjustments. The market price can be both below and above 100.^[7]
• The price when you sell your home is in practice about the price of the debt that must be repaid, not about the home's sale price itself.

Fixed or variable rate in one table

The table shows the main differences. The specific loan may have terms that change the picture.

What does a fixed rate mean?

On a fixed-rate bond loan, the bond rate is fixed for the entire term of the loan. If you have a loan with a coupon rate of 4 per cent, the coupon rate does not change because the market rate later becomes 2 per cent or 6 per cent.

That gives greater predictability about the interest cost itself.

But your total payment typically consists of several parts:

• Interest
• Repayments (afdrag)
• Mortgage administration margin (bidragssats)
• Fees
• Any other costs linked to the loan

The administration margin and certain fees can change even though the rate is fixed.^[15]

A fixed rate is therefore more accurately described as a fixed bond rate, not as a guarantee that all payments relating to the home stay unchanged for 30 years.

What happens to the bond price?

When the market rate rises, an existing bond with a low fixed rate becomes less attractive to investors. The price therefore typically falls.

When the market rate falls, the existing high rate becomes more attractive. The price typically rises.

That movement is central, because as a borrower you can redeem a fixed-rate loan by buying the bonds behind the loan at the market price. You can normally also give notice to redeem the loan at price 100 on a payment date.^[9]

What does a variable rate mean?

Variable rate is an umbrella term.

The rate can, for example:

• Be adjusted every six months based on a reference rate
• Be set for one year at a time
• Be fixed for three or five years and then adjusted
• Consist of a market rate plus a margin

When the rate changes, it affects the interest cost and therefore normally the monthly payment.

If the rate rises, a larger share of the payment goes to interest. On a loan with repayments, the payment can rise, or the repayment schedule can be calculated according to the loan's specific structure. On an interest-only loan, the rate change shows up more directly in the payment, because you are not also paying down the debt.

A variable rate therefore moves more of the interest rate risk into your monthly finances.

F-kort, F1, F3 and F5 are different

The names tell you something about when the rate changes, but not necessarily the whole story.

F-kort

At Totalkredit, the F-kort rate consists of CITA6 and an interest margin. The rate is set every six months, normally on 1 January and 1 July.^[4]

It is important to distinguish between two things:

1. The six-monthly rate change
2. The refinancing of the bond behind the loan

The interest margin can be reset when the bonds behind the loan are refinanced. That is why CITA6 is not the only thing that can change the future rate.

F1, F3 and F5

On an adjustable-rate loan, the rate is fixed between rate adjustments.

F3 therefore does not mean a fixed rate for the entire term of the loan. It means the rate is normally known for three years at a time. At the next rate adjustment, the remaining debt is refinanced at the interest rate level at that time.

The longer the period, the longer you know the rate. On the other hand, redemption between rate adjustments can be affected by the bond price.

What does the rate mean for your monthly finances?

A rate rise of 1 percentage point sounds small. On a large debt, it can be noticeable.

Here is a simplified example with outstanding debt of 3.000.000 kr. The table shows only the monthly interest before administration margin, tax and repayments.

On 3.000.000 kr., 1 percentage point equals 30.000 kr. a year or 2.500 kr. a month before tax.

That is not the same as the exact change in your monthly payment. A loan with repayments also has a repayment profile, and the administration margin comes on top.

Example with repayments over 30 years

Below is a simplified annuity calculation on 3.000.000 kr. over 30 years. It leaves out administration margin, fees and tax.

The difference between 2 per cent and 6 per cent in this example is about 6.900 kr. a month before administration margin.

On a fixed-rate loan, you are not hit by that change because the market rate rises after the loan is taken out. On a variable-rate loan, the change can feed through the next time the rate is adjusted.

Before you read the price tables: four words you need to know

You do not need to know anything about bonds in advance.

When you take out a mortgage loan, the mortgage credit institution (realkreditinstitut) sells the bonds behind the loan. You do not buy or sell them yourself. But the price of the bonds affects how large your debt becomes and what it later costs to close the loan.

Here are the four most important words:

Principal and proceeds are not always the same.

If you get a loan with a principal of 1.000.000 kr. paid out at price 98, the bonds raise about 980.000 kr. before costs. So you owe 1.000.000 kr. on paper, even though the loan has only produced about 980.000 kr. for the home purchase.

The simplest way to remember it is:

• Principal and outstanding debt are about how much you owe.
• Proceeds are about how much money you get out of the loan.
• The redemption amount is about what it costs to get out of the loan again.

What does the bond price mean on a mortgage loan?

The mortgage loan is financed through bonds.

The price is the price of the bonds. Price 100 means that bonds with a nominal value of 100 kr. are sold for 100 kr. before transaction costs. Price 97 means they are sold for 97 kr.

The price matters in two different places:

1. When the loan is taken out and paid out
2. When the loan is redeemed on a sale or remortgaging

The two situations must be kept apart.

The price when the loan is taken out and paid out

On a fixed-rate bond loan, you receive the proceeds from the sale of the bonds.

If the price is below 100, you receive less than the nominal debt.

Realkredit Danmark explains, for example, that a bond loan of 1.000.000 kr. at price 98 gives a price loss (kurstab) of 2 price points. If you need 1.000.000 kr. in cash, the nominal debt will therefore be higher.^[8]

Example: you need 3.000.000 kr. before other costs

The simplified formula is:

Cash needed ÷ price as a decimal = approximate nominal debt

In practice, price deductions (kursfradrag), brokerage fees (kurtage), other fees and any further costs come on top. The actual nominal debt can therefore end up slightly higher than the table shows.

So a price loss is not just a fee that disappears on the payout day. It can turn into higher debt on which interest and administration margin must be paid.

Full example when taking out the loan

Here we bring principal, price, proceeds and costs together in one calculation.

The example assumes you need 3.000.000 kr. in net proceeds after 25.000 kr. has been paid in loan and transaction costs. The 25.000 kr. is only an example. The actual costs depend on the institution, the loan, the price agreement and the trade.

To get 3.000.000 kr. for the home purchase, the bonds must therefore first raise gross proceeds of 3.025.000 kr.

How to read the table:

• The principal is the nominal amount for which bonds must be issued.
• The gross proceeds are the amount the bond sale raises before costs.
• The price loss is the difference between the principal and the gross proceeds.
• The costs are deducted from the gross proceeds.
• The net proceeds are the amount left to finance the home purchase.

At price 95, the principal in the example must be about 159.000 kr. higher than at price 100 to produce the same net proceeds. The higher principal also means that interest and administration margin are calculated on a larger amount.

What does the table mean for you?

At price 100, the principal and the amount from the bond sale are the same.

At price 95, you only get 95 kr. out of every 100 kr. you borrow. That is why the principal must be larger if you still need 3.000.000 kr. for the home purchase.

In the example, price 95 gives about 159.000 kr. more debt than price 100. On top of that come the 25.000 kr. in chosen example costs.

That is why you should not compare only the interest rate. A loan with a lower rate but a worse price can start with higher debt.

If you pay the costs yourself

If the 25.000 kr. is paid from your savings instead of through the financing, the bonds only need to raise 3.000.000 kr. in gross proceeds.

So the costs do not disappear. They sit either in the amount that must be financed or in the savings you use alongside the loan.

Bond loans and cash loans handle the price differently

This matters, because not all mortgage loans show the effect of the price in the same way.

Bond loans

On a bond loan (obligationslån), you know the nominal outstanding bond debt. The price determines how much the bonds raise in cash proceeds.

A price below 100 therefore typically means you must issue more bonds to get the amount you want paid out.

Cash loans

On a cash loan (kontantlån), the calculation starts from the cash amount you need. The price loss is built into the cash loan rate instead of being shown as a correspondingly higher cash outstanding debt.

That does not make the price irrelevant. It just becomes visible somewhere else in the loan's economics.

When you compare offers, you should therefore look at:

• Cash proceeds
• Nominal outstanding debt
• Cash loan rate or bond rate
• APR (ÅOP)
• Redemption terms

Two loans with the same payout can have different outstanding debt and different ways of building in the price loss.

Price risk from loan offer to handover

The price can change from the day you get the loan offer to the day the loan is paid out.

If the price falls in that period, your proceeds can be lower or the loan amount you need can be higher.

A fixed-price agreement (fastkursaftale), often called price hedging (kurssikring), can lock the price at which the loan will be settled on a specific date. It reduces the uncertainty about the proceeds, but it has a cost in the form of a fee, a price deduction and possibly a payment date deduction.^[5]

Simplified example

You have planned the financing based on price 98 on a nominal debt of 3.000.000 kr.

A fall from price 98 to price 96 reduces the proceeds by 60.000 kr. on a nominal debt of 3.000.000 kr.

That can create a gap in the financing if the price has not been hedged, or if the financing has no room for the movement.

The price when you sell your home

When you sell your home, the loans normally have to be redeemed.

It is therefore the redemption amount, not only the nominal outstanding debt shown in your online banking, that affects your sale proceeds.

The simplified relationship is:

Sale price of the home less redemption of loans less selling costs = proceeds before other settlement

The price of the loan can make the redemption lower or higher than the outstanding bond debt shown.

Fixed rate: a price fall can reduce the redemption amount

Suppose you have a fixed-rate, callable loan with outstanding bond debt of 3.000.000 kr.

If the market rate has risen since the loan was taken out, the price of the bond may have fallen.

The figures are before brokerage fees, price premium, interest and fees.

If the value of the home has fallen at the same time, the price fall on the debt can protect part of your equity (friværdi). This is what is often called the equity protection in a fixed-rate loan.^[3]

The price gain does not automatically appear as cash in your account. It is only realised if the loan is redeemed or remortgaged.

Fixed rate: what if the price is above 100?

If the market rate has fallen, the price of your existing fixed-rate loan can go above 100.

A callable loan can normally be redeemed at price 100 on a payment date with the required notice. So as a starting point, you do not need to buy back the bonds at, for example, price 105.^[6]

With outstanding bond debt of 3.000.000 kr., the difference looks like this in simplified form:

Deadlines, the payment date, interim interest and special product terms can affect the actual solution.

Variable rate: the price can also affect redemption

Adjustable-rate loans are normally non-callable between rate adjustments.

This means the loan typically has to be redeemed by buying the bonds behind the loan at the market price. If the price is above 100, the redemption can be larger than the nominal outstanding bond debt.^[7]

Assume outstanding bond debt of 3.000.000 kr.:

An adjustable-rate loan can normally be redeemed at price 100 in connection with the rate adjustment, if the deadline is met. That is why the timing of a sale or remortgaging matters.

Terms vary between products. F-kort can, for example, get a new rate every six months without that also being the point at which the bond behind the loan is refinanced and can be redeemed at price 100.

Example: sale proceeds at different redemption prices

You sell a home for 4.500.000 kr. and have outstanding bond debt of 3.000.000 kr.

The table leaves out the estate agent, lawyer, bank fees, interest and other selling costs.

The example shows the mechanics. It does not show that one loan type always gives a particular result, because interest rate developments, repayments, the age of the loan and house prices all change at the same time.

Price, outstanding debt and equity are linked

Equity is often calculated as the value of the home less the debt.

But the debt can be viewed in at least two ways:

• Nominal outstanding debt
• Current redemption amount

On a fixed-rate loan, the two figures can be very different if the price is far from 100.

Example

• Value of the home: 4.000.000 kr.
• Outstanding bond debt: 3.000.000 kr.
• Market price of the loan: 82

The second figure is closer to the money that can be realised on a sale, but actual redemption and selling costs must be deducted.

Full example of redemption and sale

When the home is sold, you need to distinguish between:

1. The nominal outstanding bond debt
2. The price at which the loan can be redeemed
3. The costs of closing the loan
4. The costs of the home sale itself
5. The final net proceeds

The example below assumes:

• Sale price of the home: 4.500.000 kr.
• Nominal outstanding bond debt: 3.000.000 kr.
• Loan redemption costs: 5.000 kr.
• Other selling costs: 100.000 kr.

The cost amounts are illustrative and not standard rates.

On the fixed-rate loan, market price 105 is not used as the redemption price in the example, because an ordinary callable loan can normally be redeemed at price 100 on a payment date. Deadlines, interest up to the payment date and other terms can still affect the final redemption.^[9]

On the variable-rate loan, the table shows a redemption between rate adjustments. Here a non-callable loan may have to be redeemed at the market price, even when the price is above 100.^[7]

How to read the redemption table

Start with the home's sale price of 4.500.000 kr. Then deduct three things:

1. The amount it costs to close the loan
2. The costs of closing the loan
3. The other costs of the home sale

The amount left is your expected net proceeds before any other loans and adjustments.

On a fixed-rate loan, a price below 100 can mean the loan can be closed for less than the outstanding debt on paper. Conversely, on a variable-rate loan, a price above 100 can mean it costs more than the outstanding bond debt to close the loan between rate adjustments.

Same sale, different redemption amount

The table shows why the nominal outstanding debt is not enough to calculate your sale proceeds.

Two loans can both show outstanding bond debt of 3.000.000 kr., while the actual amount needed for redemption is 2.400.000 kr. on one and 3.120.000 kr. on the other. The difference in this purely illustrative example is 720.000 kr.

That does not mean one loan is always better financially. The loans may have had different rates, payments, administration margins and repayments in the years before the sale.

What happens if rates rise or fall?

Rate changes affect fixed-rate and variable-rate loans differently.

The table shows the direction of the effect on your finances. The prices shown are hypothetical examples, not a fixed formula or an interest rate forecast.

On the fixed-rate loan, the existing bond rate does not change. Instead, the rate change typically shows up in the market price and therefore in the loan's redemption value.

On the variable-rate loan, the effect typically lies in the future rate and payment. The loan follows the market at the next rate adjustment, while the price between refinancings can still affect redemption.

The short explanation before the full comparison

If you only remember one difference, make it this one:

• A fixed rate first and foremost protects your monthly interest cost against rate rises. When the market rate changes, the movement instead typically shows up in the loan's price and redemption value.
• A variable rate follows the market more closely. Falling rates can give a lower payment, while rising rates can give a higher payment.

That does not mean a fixed rate is always cheaper, or that a variable rate is always cheaper. The two loans place the uncertainty in different places.

Full comparison of fixed and variable rates

The table does not show which loan ends up cheapest overall. That depends on interest rates over the whole period, the price when the loan is taken out and redeemed, administration margin, repayments, costs and how long you keep the loan.

What does the administration margin cost at the four big mortgage credit institutions?

The administration margin is the mortgage credit institution's ongoing charge for your loan. It is an annual percentage of the outstanding debt, meaning what you owe. You pay it on top of the interest.

The rate rises the larger the share of the home's value you borrow. That is why the loan is split into loan-to-value bands: the part of the loan between 0 and 40 per cent of the home's value has one rate. The part between 40 and 60 per cent has a higher rate, and the part between 60 and 80 per cent the highest.

Example: You borrow 2.400.000 kr. for a home costing 3.000.000 kr. That is 80 per cent of the home's value. So 1.200.000 kr. of the loan sits in the 0-40 per cent band, 600.000 kr. in 40-60 per cent and 600.000 kr. in 60-80 per cent. With rates of 0,3, 0,8 and 1,1 per cent, the administration margin in the first year is 3.600 + 4.800 + 6.600 = 15.000 kr. The rates are chosen to keep the arithmetic simple. They are not any particular institution's prices. The administration margin falls as you make repayments, because the most expensive part of the loan is paid down first.

The administration margin is only one part of the price. The bond price and the bank's fees also count, so the table alone cannot show which loan is cheapest for you. See the full price in the guide to your loan offer. See also rates for short variable-rate loans, holiday homes and fees side by side in the guide Compare home loans.

Remortgaging is more than a new rate

When rates change, a fixed-rate loan can be remortgaged.

Remortgaging to a higher rate (opkonvertering)

When rates rise, the price of the existing loan can fall. The loan can be redeemed more cheaply and replaced by a new loan with a higher rate.

This can reduce the outstanding debt, but normally increases the interest cost and the payment.

Remortgaging to a lower rate (nedkonvertering)

When rates fall, an existing loan with a high rate can be redeemed and replaced by a loan with a lower rate.

This can lower the payment, but the new outstanding debt is often higher because of the price and costs.^[14]

Remortgaging typically involves costs for:

• Fees
• Brokerage fees and price premium
• Land registration (tinglysning), if not enough previously paid fee can be reused
• Price loss on the new loan
• Any interest differential (differencerente) or interim interest

That is why you should look at the break-even point: how long does it take before a lower payment has earned back the remortgaging costs and any higher outstanding debt?

Repayments and interest-only periods are a separate choice

Fixed or variable rate does not tell you whether the loan has repayments.

A fixed-rate loan can be with or without repayments. The same applies to several variable-rate loans.

An interest-only period (afdragsfrihed) typically means:

• Lower payments during the interest-only period
• Slower or no reduction of the debt during the period
• A higher administration margin than on a comparable loan with repayments
• A risk of higher payments when the interest-only period ends

On a variable-rate, interest-only loan, both the rate and the payment after the interest-only period can change your finances. The two risks should therefore be calculated separately.

An interest-only period costs most on the top part of the loan. Below 60 per cent of the home's value, the surcharge is small or zero at the four institutions. The table shows the administration margin on the part of a fixed-rate loan that lies between 60 and 80 per cent.

What does your choice of loan mean for the bank's assessment?

The bank does not only look at the current payment.

It may also assess:

• Whether your finances can bear a higher rate
• Debt-to-income ratio (gældsfaktor)
• Loan-to-value ratio, LTV (belåningsgrad)
• Disposable income (rådighedsbeløb) after the home purchase
• Net worth (formue) and down payment (udbetaling)
• Whether the loan has repayments
• Whether the combination of a high debt-to-income ratio, a high loan-to-value ratio and the loan type is too risky

A variable-rate loan with a lower payment today therefore does not automatically give a higher approved purchase budget.

Read how it all fits together in the guide on the four pillars of your home finances and the guide on disposable income.

How to compare specific loan offers

Compare the offers on the same loan amount, term and repayment profile.

Then look at:

Also read the guide Understand your loan offer.

Four questions that make the difference concrete

1. How much can the payment rise?

Ask for a calculation at several interest rate levels. Look at the payment both before and after tax, and at your new disposable income.

2. How long do you expect to own the home?

A short time horizon makes the price and redemption terms more visible, because you may need to get out of the loan before the next rate adjustment.

3. How big a buffer is there in your finances?

A variable-rate loan may need more room for rate rises. A fixed-rate loan can have a higher payment from the start.

4. What happens to the outstanding debt?

Do not compare only the payment. Look at the expected outstanding debt and the possible redemption amount after 5 and 10 years.

Common misunderstandings

A fixed rate means a fixed total payment

Not quite. The bond rate is fixed, but the administration margin, fees and other housing costs can change.

A variable rate means the rate changes every month

No. The interval depends on the product. F-kort typically changes every six months, while F3 normally gets a new rate every third year.

F-kort is refinanced every six months

Not necessarily. The rate can change every six months, while the bond behind the loan is refinanced at a different interval.

Price 95 means a fee of 5 per cent

No. On a bond loan, it means that bonds with a nominal value of 100 kr. raise about 95 kr. in proceeds before costs. That can lead to higher nominal debt.

The price only matters when you take out the loan

No. The price can also affect the redemption amount on a sale or remortgaging.

The outstanding debt in your online banking is always the amount to pay on a sale

No. On bond-based loans, the redemption amount can depend on the market price, the option to redeem at par and the timing.

A fixed rate is always the most expensive

Not necessarily over the whole period you have the loan. It depends on future rates, price, administration margin, repayments, remortgaging and costs.

A variable rate is always the cheapest

No. It may have a lower rate when taken out, but the future rate is unknown.

In short

Fixed and variable rates place the risk in different places.

A fixed rate gives greater predictability about the bond rate and can make the redemption value of the debt fall when the market rate rises.

A variable rate may have a lower rate when taken out, but the payment can change at the next rate adjustment. At the same time, the price can affect redemption between refinancings.

So look at four figures at the same time:

1. The payment now
2. The payment at a higher rate
3. The outstanding debt after 5 and 10 years
4. The redemption amount if you need to sell or remortgage

See the payment with a fixed and a variable rate in the monthly payment calculator, and which loans your debt-to-income ratio gives you access to in the Loan Choice Check.

BoligKlar gives you a second pair of eyes and an overview. The bank or mortgage credit institution prepares the specific offer and assesses the financing.

Frequently asked questions