# Interest calculation for building loans or other real estate financing.

Whenever someone wants to borrow money from the bank and take out a loan, they have to pay interest to the bank. How high this interest is depends on various factors such as the amount of the loan, the term and the amount of available equity.

## Importance of the creditworthinesss

But the creditworthiness of the borrower also plays an important role in the interest calculation. The legal basis for interest can be found in § 488 BGB (Civil Code).

Construction finance, associated with high sums. In order to get a precise overview of the expected interest, it makes sense to carry out an interest calculation.

Such a calculation of interest over the usually very long term of 20 or even 30 years is very complex and is influenced by the following factors:

- Loan amount (it is the basis of every interest calculation)
- Effective interest rate (also called effective annual interest rate, includes all important additional costs)
- Repayment rate (shows the amount of the initial repayment amount, usually given in percent)
- Term of the fixed interest rate (the period with fixed interest rates)
- Total term (duration until the loan is fully repaid)

## With the right interest calculation for the desired home loan

The borrower repays, the lower the remaining debt, for which the bank in turn carries out an interest calculation.

- In the case of annuity loans in particular, the interest is calculated on the basis of the remaining debt at the end of the year or beginning of the year. The lower this residual debt, the lower the remaining interest burden

Shows loan interest? The most important calculation is the one with which you get the effective interest. It is so important because the customer can use it to compare different loan offers. The formulas for a comprehensive loan and interest calculation are:

Loan amount – loan cost = net loan amount

Interest rate in percent x loan amount x term: 100 = interest on a loan

[Loan cost x 24 x 100%]: [net loan amount x (term in months + 1)] = effective annual interest rate (in%)

Processing fee (in%) x loan amount: 100 = processing fee

With the help of these formulas, all determinant factors for an interest calculation and thus for the expected total costs of a loan can be calculated. With the interest calculation, the customer can better estimate whether a loan is feasible for him or proves not to be feasible due to high costs.

- You can also use our interest calculator for quick and easy calculation.

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