The loan amount is the amount agreed in a loan agreement that the applicant receives from a bank or credit institution.
This pays interest and must be reimbursed in accordance with the contractual agreements. Determining factors for the amount of the sum include:
- the total cost of the planned investment
- the financial situation of the borrower
- the applicant’s existing equity
- the borrower’s credit rating
The importance of equity for the amount of the loan
In addition to the total cost, the most important factor is the equity that the applicant can raise. In principle, it is possible to obtain a loan without equity, but the more own capital there is, the lower the loan amount can be.
- The lower the loan amount, the lower the interest rate charged by the bank and the shorter the total term of the loan.
This method is used for classic loans. Other forms of loans are called:
- Installment loan (loan amount between 1,000 and 50,000 USD)
- Annuity loan
- final loan (the entire amount will be reimbursed by a one-off payment).
The annuity loan and the final loan in particular are often used for real estate financing. Here, the loan amount is often at least 25,000 USD, but is open at the top. The maximum amount depends primarily on the financial situation of the borrower.
The loan amount and the collateral value of the security
If you want to buy or build a plot of land with or without a building or apartment, you have the option of having a so-called mortgage or mortgage entered in the land register and thus securing the loan amount. Lenders almost always require this form of protection when it comes to buying or building a property.
The advantage here is that this form of security can lead to an increase in the loan amount. If a very high value (also called mortgage lending value) is determined for the property and the applicant has excellent creditworthiness, the bank can approve a loan amount that is above this mortgage lending value.
How does a high loan amount affect?
If you want to buy or build a property and have little equity, you can expect a long loan term and higher interest rates. This enables the bank to pay the greater risk. If you are considering the idea of such financing, it makes sense to first use a special calculator, such as the house loan calculator from home credit, to calculate the maximum loan amount that is possible at a monthly rate that can be paid.
This already gives an indication of whether real estate financing can actually be carried out.
- In order to reduce the amount of the loan, it makes sense to look for sources to increase the equity component. Maybe family members, friends or acquaintances can be addressed. The employer could also help with a very low-interest loan.