Mortgage credit loans (realkreditlån) explained: how they work

A realkreditlån (mortgage credit loan) is the loan most people in Denmark use to finance their home. What sets it apart from an ordinary bank loan is that the loan is tied directly to bonds that the mortgage credit institution (realkreditinstitut) sells to investors. This article walks you through how it fits together and through the terms you will meet along the way: loan limit, contribution rate (bidragssats), bond-price deduction (kursskæring), interest-only periods and repayment of the loan.

What is a realkreditlån?

A realkreditlån differs from an ordinary bank loan in that there is a direct link between your loan and the bonds that finance it. According to Finans Danmark (the Danish financial sector association), it works like this: when you are granted a realkreditlån, the institution issues bonds with terms that match your loan. Investors buy the bonds, and the proceeds are used to finance your loan.

According to Finans Danmark, this means that the terms of the loan are set objectively on the basis of market interest rates and bond prices. According to Tænk (the Danish Consumer Council Tænk), supply and demand in the market determine how high the interest rate on your loan is.

The loan is secured by a mortgage on the home itself. Tænk explains that the lender receives a mortgage deed (pantebrev) over the home. If you do not repay the loan, the institution can demand that the home is sold.

Realkreditlån are offered by mortgage credit institutions, not by ordinary banks, and the loan is typically arranged through a bank. Forbrug.dk says there were four mortgage credit institutions in the Danish market, that nearly all Danish banks have a fixed agreement with one of them, and that the banks therefore have only one mortgage credit product on the shelf. That is part of the explanation for why you can often take out a realkreditlån through your bank even though it is another company that stands behind the loan and the bonds.

Mortgage credit institutions work with what is known as the balance principle. The 2018 study by the Danish Financial Supervisory Authority (Finanstilsynet) describes the established picture as one where payments on the loans and on the bonds broadly match in timing and size, and notes that the principle exists in a stricter, specific version and a more flexible, overall version. We have not found a source that sets out the rule itself in more detail, so treat this as background; for your own loan the practical point is the direct link between loan and bonds described above.

How much can you borrow?

Under the mortgage credit legislation there are limits on how large a share of a property’s value can be financed with a realkreditlån. The limits differ depending on the type of property. According to Finans Danmark, the main examples are:

• Owner-occupied homes for year-round use: up to 80 per cent of the value.
• Holiday homes: a lower limit than for year-round homes.
• Agricultural and forestry properties: a lower limit than for homes.
• Office and commercial properties: a lower limit again.
• Undeveloped plots: the lowest limit of those mentioned.

The limit in your case also depends on the institution’s own credit assessment of you and the home, and Finans Danmark notes that each institution decides in the individual case whether the maximum limits can be applied. The institution can therefore choose to lend less than the statutory maximum. According to Forbrug.dk, the part of the purchase price above the realkreditlån can be financed in the bank, and the rest you must normally provide yourself.

The rules also set a limit on how long the loan may run. According to Finans Danmark, the maximum term for most property categories is 30 years, while certain new social housing (alment boligbyggeri) can have a term of up to 40 years. A longer term typically means a lower monthly payment, but also that you pay interest and contribution over a longer period, all else being equal.

Mortgage credit loan or bank loan?

Besides the realkreditlån there are bank loans (prioritetslån) that can also be used for home financing. According to Forbrug.dk, a prioritetslån from the bank can cover up to 80 per cent of the home’s value. Its interest rate is typically higher than on the realkreditlån, but the loan is typically more flexible. You do not pay a contribution rate on a prioritetslån, but you pay an interest-rate supplement to the bank. Forbrug.dk describes a top-up loan (tillægslån) separately, as an extra loan against the equity in your home, for example for improvements.

A total home loan can therefore consist of several parts: a realkreditlån up to the loan limit, possibly a bank loan, and your own down payment. Read more about how to compare the total costs across loan types in how to compare home loans.

In practice, most home purchases are financed by a combination of your own savings, a realkreditlån and possibly a smaller bank loan. How large a share comes from each source depends on the price of the home, your savings and the bank’s and institution’s assessment of your finances as a whole, including what you have left after fixed expenses.

Fixed or variable interest rate

When you choose a realkreditlån you also have to choose whether the interest rate is to be fixed or variable. With a fixed-rate loan the rate stays the same for the whole term. With a variable-rate loan, for example an F3 or F5 loan, you only know the rate a few years ahead, after which it is adjusted when the bonds behind the loan expire and have to be replaced by new ones. This is called refinancing.

According to Tænk, refinancing means that the bonds behind your loan expire (our translation of the Danish wording) and that new bonds with a new interest rate take over the financing of your outstanding balance. If the interest rate level has risen since the last refinancing, your payment rises accordingly, and vice versa if rates have fallen.

The choice between fixed and variable depends, among other things, on how sensitive your finances are to changes in the interest rate and on how long you expect to stay in the home. We go into the trade-off in fixed or variable interest rate?

The contribution rate (bidragssats)

On top of the interest, you pay an ongoing contribution rate (bidragssats) to the institution on a realkreditlån. According to Forbrug.dk, the contribution rate is set on the basis of the loan type and how large a share of your home is mortgaged when the loan is taken out, and it can change during the term of the loan if market conditions change. Tænk says that the institution can change the contribution rate at short notice, and that this is stated in your loan terms. Ask your institution directly if you are in doubt about what applies to your loan.

The contribution rate is an item that can set two otherwise comparable loan offers apart, because it comes on top of the interest rate as a recurring cost. We go through what typically affects its size in the separate guide what is the contribution rate?

Bond-price deduction and bond price

Because your loan is linked to bonds that are traded in the market, you typically also pay a bond-price deduction (kursskæring) when the loan is set up, repaid or refinanced. According to Tænk, kursskæring (also called kursfradrag) is a fee the institution charges for trading the bonds. Tænk adds that on adjustable-rate loans (F1, F3 and F5) the institution has to sell new bonds each time you get a new rate, and that this can become expensive in bond-price deductions.

The bond price (kurs) also affects how large a loan you effectively receive. If the bonds are traded below 100, more bonds have to be issued, and so a larger outstanding balance taken on, for you to receive the cash amount you want. Ask the institution for the expected bond price on your loan before you sign.

The price of the bonds behind your loan moves with the interest rate level in the market, as the price of other bonds does. That means the price you get when the loan is set up, refinanced or repaid is not necessarily the same from one month to the next.

Interest-only periods

Many realkreditlån can be set up with an interest-only period (afdragsfrihed), where you pay only interest and contribution but make no repayments on the debt itself. According to Finans Danmark, there is a limit on how long the interest-only period may be for owner-occupied homes and holiday homes under the general rules, while the limit can be different for other property types. According to Tænk, contribution rates are higher on an interest-only loan than on a loan with repayments.

Forbrug.dk warns that your payment becomes large once the interest-only period is over, because you have a shorter time left to repay the loan. According to Tænk, you cannot get an interest-only period in every situation, because it requires that you can be approved for it in a credit assessment. Some borrowers choose to renew the interest-only period if the institution allows it, but this may require a new credit assessment.

Repayment, conversion and refinancing

According to Tænk, to repay (indfri) a realkreditlån means paying off the whole outstanding balance, either because you sell the home, have come into money to pay off the loan, or want to convert to a new loan. Conversion (omlægning) means replacing your existing loan with a new realkreditlån, typically because the new loan is cheaper overall or because you want different terms, for example switching from a variable to a fixed rate.

Both repayment and conversion carry costs, including bond-price deduction and fees, and possibly land registration duty on a new loan. Whether it pays to convert depends on the difference in total costs over the remaining term compared with the one-off costs of the conversion. It is the same type of calculation that is used to judge whether it pays to switch bank; see the approach in is it worth switching bank?

When you take out or convert a realkreditlån, the new mortgage deed has to be registered in the Land Register (tinglysning), and land registration duty (tinglysningsafgift) has to be paid to the state. According to the Danish Tax Agency (Skattestyrelsen), the duty consists of a fixed duty of DKK 1,825 plus a variable duty calculated as a percentage of the loan principal. The variable rate was reduced from 1.45 per cent to 1.25 per cent on 1 January 2026. Tænk says that the duty goes to the state. It does not go to the institution, but it is part of the one-off costs you should include when you assess whether a conversion pays. Forbrug.dk’s page from 2021 says that on a conversion you pay the fixed part, but the variable duty only on the part that exceeds the principal of the old loan; ask your adviser what applies in your case, because that description is from 2021.

How to compare mortgage credit loans

Because a realkreditlån consists of several items (interest, contribution rate, bond-price deduction and possible fees), the nominal interest rate alone is not enough to decide which offer is actually cheapest. According to Forbrug.dk, APR (ÅOP, annual cost as a percentage) is a measure of the total annual cost of a loan, and it is mainly suited to comparing loans with the same loan amount and term. The sources we have used do not say exactly which items are included in the APR on a mortgage credit loan, so ask the institution what is included.

• Ask for a full example with the APR and the total costs in kroner over the whole term, not just the nominal interest rate.
• Compare interest and contribution rate together, not separately. As the worked example above shows, a lower contribution rate can outweigh a higher interest rate.
• Ask about the expected bond price, and so the bond-price deduction, on your specific loan.
• Get offers from several mortgage credit institutions, and from banks if you are considering a prioritetslån for the remaining part of the financing.
• Compare loans with the same loan amount, the same term and the same type of interest rate, so that the figures can really be set side by side.
• Ask whether there are set-up fees or other one-off costs that are not clearly reflected in the ongoing APR.

Remember also that the cheapest offer on paper is not necessarily the right choice for you. A lower payment today, for example with an interest-only period or a variable rate, can mean less predictable finances later in the term. Factor in your appetite for risk and your time horizon, not just the current price.

Tænk’s explanation of kurssikring is a reminder that the bond price can change between the time you receive a loan offer and the time you need the money. A loan offer therefore reflects the market at a given time. When you receive several offers, compare them at the same time where you can, or ask the providers to calculate for the same date, so that you compare figures that reflect the same market conditions.

What to ask the bank or mortgage credit institution

• What are the full APR and the total costs in kroner over the whole term for my specific loan?
• What is the contribution rate, and what terms apply to its changing during the term?
• What is the expected bond-price deduction, and how much larger does my outstanding balance become if the bonds are traded below 100?
• What does it cost to repay or convert the loan early?
• How does an interest-only period affect my contribution rate and my outstanding balance in the long run?
• What happens to my payment on refinancing if interest rates rise?

Can I always get the maximum realkreditlån of 80 per cent?

No. The 80 per cent that Forbrug.dk and Finans Danmark mention for owner-occupied homes is a statutory maximum, not a guarantee. According to Finans Danmark, the individual institution decides in each case whether the maximum limits can be applied, and the institution makes its own credit assessment of both you and the home and can choose to offer a smaller loan.

Is the contribution rate the same as the APR?

No. The contribution rate is one item you pay on the loan. APR is a measure of the total annual cost of a loan, intended to make it possible to compare the full price across offers. Ask the institution which items are included in the APR it quotes.

Can I take out a realkreditlån without going through my bank?

Forbrug.dk says that nearly all Danish banks have a fixed agreement with one of the mortgage credit institutions, so the bank has only one mortgage credit product on the shelf, and that if you want offers from several institutions you have to seek them out yourself. It can be worth doing so, especially if your current bank’s institution does not give you the best offer on interest rate, contribution rate and other terms. The sources we have used do not say how you approach an institution other than the one your bank works with, so ask your bank or the institution you are interested in.

What happens if I cannot pay my realkreditlån?

If you cannot pay your payment, you should contact your mortgage credit institution as soon as possible to find a solution before you fall into arrears. According to Tænk, the institution holds a mortgage over the home and can demand that it is sold if you do not pay the loan. The earlier you make contact, the better your options are likely to be.

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