State-owned mortgage bank SBAB lowered its discount rate (we will explain what that means shortly) by half a percentage unit to six percent on Tuesday, after cutting it from seven to six-and-a-half last year.
The decision follows falling interest rates in Sweden and the rest of the world.
“We believe that interest rates have settled on a structurally lower level than before, and it is not likely that they will risk rising significantly in the near future. There's room to lower the discount rate then,” Klas Danielsson, CEO of SBAB, explained the decision to Swedish newswire TT.
But we know what you're thinking: what does this mean for you?
The discount rate is essentially one of the factors SBAB and other banks use to assess a lender's long-term ability to pay back the loan, taking into account future increases to the general interest rate and increased costs for the customer. So in short it affects how much money you can borrow from the bank.
SBAB said its decision to lower the discount rate means that customers will effectively be able to borrow around 10 to 17 percent more today compared to when it stood at seven percent, depending on other factors such as amortisation – exactly how much you plan to pay off on your loan every month.
Swedish banks are currently offering customers the chance to hold off on amortising their mortgage, meaning that customers only have to pay interest and not pay off the loan itself. This decision was made on the back of coronavirus-fuelled economic concerns and is in force until August next year.
However, you should always think twice before taking on extra loans, and how big a mortgage you get for a new property should also depend on your own assessment of your ability to pay it back. It is generally better to err on the cautious side, and keep a future amortisation requirement in mind.
SBAB's discount rate is on the lower end of the scale. On average Swedish banks currently offer a discount rate of seven percent. SEB's discount rate currently stands at six percent, Nordea's at seven percent and Handelsbanken's at just above seven percent, and no one else expects further changes.
“We estimate a discount rate of 7.5 percent and look at the customer's income, expenses, assets and potential debts when assessing their ability to repay (the loan),” Petri Rask, head of product and business development at Handelsbanken's mortgage institute Stadshypotek, told TT in an email.
discount rate – (en) kalkylränta
mortgage – (ett) bolån
amortisation requirement – (ett) amorteringskrav
interest rate – (en) ränta
to pay – att betala