In socialist Denmark, bank pays your mortgage!

[J]

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Mortgages frames negative rate for the first time
Nordea Kredit must now bring money back to individual customers instead of charging them, writes JP Financial.
30 Jan. 2015 pm. 12:21 Updated 30 Jan. 2015 pm. 12:53

For the first time a Danish mortgage bank, Nordea Kredit, issued a mortgage with a negative interest rate, Jyllands-Posten's corporate site Finans.dk Friday .

This means that Nordea Kredit this week have had to pay interest back instead of charging them to a handful of customers, says housing economist at Nordea Kredit, Lise Nytoft Bergmann for Finance.

- The interest rate has balanced around 0 in a level between minus 0.03 percent plus 0.03 percent. Most have paid a modest positive interest rate, but there are so few who have had a negative rate. It is quite an unusual situation, says Lise Nytoft Bergmann.

Also read Professor: Banks are to blame for increased mortgage fees
Frames F1 customers

It is residential customers who have chosen to stick with F1-loan that now benefit from the negative interest rate. F1 loan form has otherwise been strong returns in recent years in favor of fixed interest loan.

Although interest rates are negative, it is not something that can be felt by customers as contributions and other costs continue to be paid. In turn, interest will be deducted from the contribution.

Precisely because it is an unusual situation, Nordea Kredit's IT systems are not geared to the situation when the computers are only used to collect interest.

Lise Nytoft Bergmann says that there is no cause for concern, and that the new situation can be handled, "but sometimes we have to use duct tape and paste."
More customers can get negative rate

In week nine, a number of variable-refinancing, and now will no longer rule out a greater share of customers could have a negative rate.

Also read from on Thursday, Nordea customers borrow money to two percent

Mortgage Denmark is one of the mortgage banks, where F1 rate also is close to zero, and here you are very excited about the upcoming negotiations, says Christian Hilligsøe Heinig, chief economist of the Mortgage Denmark.

- We have an auction just around the corner and it is very exciting to see how interest rates are going. We can go and get negative interest rates, says Christian Hilligsøe Heinig to JP Financial.

So thanks to negative interest rate policies, the bank pays the borrower interest on mortgages instead of the other way around. Truly, we've entered the twilight zone.

[ArmorPierce]

I would think that it is due to Danish inflation being near 0 and threat of deflation rather than interest rate policies. When a dollar today is no longer worth more than a dollar in the future, you can theoretically see negative interest rates. Instead of lenders earning interest for the time value of money, they are being charged interest due to the fact that the value of the monetary unit in the future (which they will be receiving back) is worth more than the value of a monetary unit today.

Correct me if my line of thinking is incorrect, I submit the Capital Asset Pricing Model:

r(a) = r(f) + B(a) (r(m) -r(f))

CAPM assumes that investors needs to compensated for two things:
Time value of money
risk

As we can see from the equation, if the net of the negative risk free rate (which represents the time value of money) and market rate is negative, then we can expect to see negative interest. The question is whether the danish interest rate policies reflect actual market forces.