Refinancing wealth gains have reduced debt and may also support consumption
Many Danish homeowners have used interest rate increases to refinance their mortgages. When interest rates rise, the price of fixed-rate mortgage bonds falls, enabling homeowners to repay their loans at a price below the price of the loan when it was taken out. This means that homeowners can realise a net wealth gain, which they can use for various purposes. Danmarks Nationalbank’s economists have conducted a study of how these homeowners have spent their net wealth gain on. The study showed that most people have reduced their bank or mortgage debt. Others have chosen to extract cash to support consumption or savings at a time when rising interest rates and high inflation generally dampen economic activity.