University of Gujarat

(UOG)
Department of Management
(BBA 2 year)

Assignment # 3
Course Title: Financial Markets & Institutions
Course Code: MGT-418
Submitted to:
Respectable Sir (Dr) Adnan Bashir
Submitted by:
Muhammad Mansoor (Roll # 19016620-036)
Nabeel Akram Khan (Roll # 19816620-006)

Semester 4th
Date of Submission: June 01, 2021
 Assignment # 3
A mortgage loan is a type of secured loan where you can avail funds by providing
your asset as collateral to the lender. A mortgage is usually a loan sanctioned
against an immovable asset like a house or a commercial property. The lender
keeps the asset as collateral until the borrower repays the total loan amount.

There are two types of mortgage markets: Primary and Secondary mortgage
market.

The primary mortgage market is the market where borrowers can obtain

a mortgage loan from a primary lender. Banks, mortgage brokers, mortgage
bankers and credit unions are all primary lenders and are part of the primary
mortgage market.

The secondary mortgage market is the market for the sale of securities or bonds
collateralized by the value of mortgage loans.

Types of Mortgages in Denmark

There are three types of mortgage loans on offer:

1. fixed-rate loans
2. adjustable-rate mortgages (ARMs)
3. floating-rate loans with/without interest rate cap

Fixed-rate loans:
Borrowers with fixed-rate loans are protected with rising or fall in interest rates.
The borrower knows the fixed repayments throughout the term of the loan. The
long-term fixed-rate mortgage loan has two prepayment options:

i. The borrower may prepay the outstanding debt at par (100).

ii. The borrower may purchase the underlying bonds in the financial markets
and hand them over to the mortgage bank. This is the cheapest method if the
price of the bonds is below par. In practice, mortgage banks purchase the
bonds on behalf of borrowers.
Adjustable-rate mortgages (ARMs):
The main advantage of ARMs is that interest rates are generally lower than those
of fixed-rate loans when granted. However, the borrower does not know the
amount of future repayments as the interest rate will increase/decrease throughout
the loan.

Floating-rate loans with/without interest rate cap:

In addition, the loan type differs from ARMs in that the interest rate depends on a
reference rate, i.e., an interest rate determined by another market. Floating-rate
loans can be offered with a cap on the floating interest rate. The cap ensures that
the interest rate cannot exceed a certain level allowing the borrower to hedge
against major increases in the interest rate. If a loan has a 6 per cent cap, the
interest rate will not be higher than 6 per cent for the duration of the cap. Loans
without a cap simply track the reference rate.

The Danish mortgage credit market is characterized by standard products. These

are not tailored specifically to the needs of the individual customer. However, there
are so many varieties of the standard solutions making it possible for the individual
borrower to select precisely the loan that is best suited to his/her situation.

The law in Denmark dictates that Danish and EU/EAA citizens can finance up
to 80% of their property with a mortgage. The next 15% can be financed with a
bank loan, and the final 5% is the down payment, i.e., your savings.

If you are neither Danish nor an EU/EAA citizen, then the down payment varies
from 10-40% of the purchase price. You can still finance up to 80% of your
property with a mortgage but how much you can really borrow is determined by your
bank.

Danish bank launches world’s first negative interest rate mortgage-handing

out loans to homeowners where the charge is minus 0.5% a year.
Negative interest rates effectively mean that a bank pays a borrower to take money
off their hands, so they pay back less than they have been loaned. Interest-free
mortgages boost the housing demand; strengthen the labor market and that results
in stimulating the Danish economy

Jyske Bank, Denmark’s third largest, has begun offering borrowers a 10-year deal
at -0.5%, while another Danish bank, Nordea, says it will begin offering 20-year
fixed-rate deals at 0% and a 30-year mortgage at 0.5%.

That means the borrower borrows the amount for two decades without paying
interest or the borrower makes a monthly payment to repay the loan and the
remaining unpaid balance reduces every month by more than what borrower pays
monthly. It looks like that lender is paying more to the borrower but actually, the
borrower ends up paying little more than what they borrowed as there are fees
which bank charges to make the mortgage.

“We don’t give you money directly in your hand, but every month your debt
is reduced by more than the amount you pay,” said Jyske’s housing
economist, Mikkel Høegh.

Buying a home is one of the most important decisions you will make. Whether it’s
your first home purchase or you’re a seasoned homeowner, Denmark State Bank
offers a variety of affordable home financing solutions. First Hometown
Mortgage offers competitive rates and closing costs, with the convenience of
making your payment locally — because your loan will stay right here, at your
hometown bank! Local decision-making and servicing are just a few of the benefits
you’ll enjoy with our Hometown Mortgage.

Second Fixed-rate mortgages are available for purchasing or refinancing a home.

With this option, your interest is locked in for the term of your loan, so your
principal and interest payment will be the same every month — which is great for
planning your budget. Plus, you can avoid unpleasant rate increase surprises.
END…