Low rates lead to a record wave of Danish mortgage refinancing

Danish homeowners have taken advantage of ultra-low interest rates to pay down mortgages worth 137 billion Danish crowns since May, Denmark's biggest refinancing wave yet.

July 29 (Reuters) - Danish homeowners have taken advantage of ultra-low interest rates to pay down mortgages worth 137 billion Danish crowns since May, Denmark's biggest refinancing wave yet.

In Denmark, mortgages are funded by loans that are collected in covered bonds and sold on to investors. Those bonds have not defaulted once in more than 230 years.

The bonds can be redeemed at par every quarter, which usually prompts last-minute calls to the bank by homeowners wanting to improve their finances. The current conversion window closes July 31.

Monday's wave of refinancings is an aggregate of all Danish mortgage lenders' reported redeemed loans compiled by the country's biggest mortgage lender, Nykredit [RIC:RIC:FRNYKR.UL]. The latest refinancings beat a record set in 2005 that totalled 123 billion Danish crowns ($18.33 billion).

The wave has partly been prompted by foreign bond investors seeking attractive safe-haven bets, such as the 1% fixed-rate mortgage loan with a 30-year maturity issued by Danish mortgage lenders in April and June, the cheapest ever in Denmark. .

"We have never before witnessed conversions of loans for as many billions as right now, and there are three days left for the deadline," Jeppe Juul Borre, the chief analyst at Nykredit's Totalkredit, said in a note.

In 2005, homeowners sought to refinance 6% to 7% fixed-rate mortgages to 4% loans. Now, 2% or 2.5% fixed-rate mortgages are being refinanced into 1% loans.

Despite low interest rates, the triple-A rated nation is considered a safe but still profitable investment destination, and its covered bond market has stoked interest abroad.

Foreign investors' share of Danish fixed-rate covered bonds has increased by more than 20% since 2010, according to Borre. From May to June alone, that number rose by 240 basis points to 33.4%.

"The foreign investors have actually further accelerated the Danish wave of refinancing mortgages," Borre told Reuters.

Mortgage loans in Denmark total around 3,313 billion Danish crowns ($494.02 billion), according to data from the Danish central bank. The Danish mortgage bond market is the second biggest in Europe after Germany.

($1 = 6.7062 Danish crowns)

(Reporting by Nikolaj Skydsgaard and Jacob Gronholt-Pedersen, editing by Larry King)

((Nikolaj.Skydsgaard@thomsonreuters.com;))

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