He means that the price of the bonds backing the mortgage fall. Since the bonds are fixed interest, when interest rates rise, new bonds at a higher interest rate are more profitable than the old bonds at a lower interest rate. As such the free market price of the old bonds will drop to until the selling-at-a-loss reaches an equilibrium with the expected increased profit from higher interest rates of the new bonds over the lifetime of the bond.

This lets the loan taker buy back their own bonds for less than what they were paid (the loaned amount) when the bonds were issued.

Yup exactly this. If you go to "normal" bonds, there's many articles describing the idea, e.g. https://www.schwab.com/learn/story/what-happens-to-bonds-whe...

But basically:

Say a bond was originally worth say $100 and generated $10 of income in time T (10%). If interest rates rise so that $100 will now generate $20 (20%), then the original bond is worth less to a buyer. If we ignore the time delta, that bond would only really be worth $50 ($50 to generate $10 is the same 20%), so it's half as valuable. (The time change would bring it somewhere in between, depending on how long has elapsed).

Here is how I hear it personally; When interest rates rise, demand for other assets go down, which would include these mortgage bonds; which means it is now cheaper to buy your mortgage out due to reduced demand. Essentially your mortgage is now dynamically priced, in terms of extinguishing it; by the market. If so - sounds brilliant actually.

Especially because this would correctly price the change in time value of money changes - without such a system, people are incentivised to pay as slowly as possible when the interest rate on their loan is lower than the central bank rate.

In Denmark, with a realkredit loan. The loan is funded by bonds that investors buy. The realkredit institution manages these loans and makes sure the investors get paid back.

The refinancing part is essentially if the interest rates go up I can ask to pay those higher interest and bit more per month and then my total mortgage debt goes down. In some cases you can save a lot of money by doing that. It depends.

Also monthly payment is misleading. You pay quarterly not monthly. So its calculated maybe 10.000DKK monthly but you will always pay 30.000DKK quartely.

Don´t know why its always described as monthly in Denmark when no one pays realkredit on a monthly basis. It could be because the mortgage you can get is based on a monthly salary. But I am just guessing. No idea.

Its a good system though. IMHO Denmark is very much a delusional capitalist country with socialist tax rates but this realkredit system is really superb.

Can a foreigner buy these 'realkredits'?

Yes, but I'm not sure why you would.