What is the mortgage lending value?

If you wish to take out a loan, you must offer the lender security if repayment of the loan is not possible. Then the lender can satisfy himself on the basis of the defaulting payments on the collateral. In order to find a binding credit line at all, the mortgage lending value for the collateral must first be determined. The mortgage lending value is calculated individually by a lender, such as a bank. Different banks use different sets of rules and calculation formulas in order to determine the value for the desired loan. After all, the mortgage lending value serves as collateral for a desired loan. The mortgage lending value can refer, for example, to a property, movable property, rights or securities that are intended to act as collateral for a loan. The calculation of the mortgage lending value is based on the realisable sales value of the collateral during the credit period. The mortgage lending value always determines the maximum loan amount at the same time. In this context, discounts for fluctuations in value or other risks have already been included as lending limits. This means that the mortgage lending value is a certain flat-rate calculation, which is subject to strong discounts in comparison to the real value. These calculations and determinations are necessary so that the loan has a counter-guarantee and the lender is not left empty-handed if the loan cannot be repaid.

Lending of real estate

In the case of real estate, the individual valuations used for the calculations must always be separated. Often the current market value of a property is also considerably higher than the calculations of the mortgage lending value. For the granting of a loan, a value is fixed for a longer period of time at which the property can be resold at any time. Special Market fluctuations during a certain period are not taken into account. For the borrower, this means that he must expect considerable discounts compared to the market price.

Calculation of mortgage lending value in detail

For the calculation of the mortgage lending value, the Mortgage Lending Value Determination Ordinance is applied. The Ordinance on the Determination of the Mortgage Lending Value specifies three procedures to be applied for the calculation. The market value is determined for apartments and land in order to be able to carry out a comparative value procedure. The property to be valued is compared with properties in the immediate vicinity with regard to the purchase price in order to determine a value. In the case of real estate, however, the real value method is frequently used, whereby the value of the land and the value of the building are added together. Nevertheless, with this method a realistic value can be determined which is above the market value determination. This procedure is applied to condominiums and owner-occupied real estate. In the case of leased objects, a calculation procedure is used to calculate the revenue opportunity. This procedure can result in completely different value shifts. However, the real value of the property serves as a very important benchmark in this procedure. If the capitalised value in the calculations exceeds twenty percent of the real value, a corresponding reduction must be made, otherwise the value limits will shift.

Further calculation variants

Cooperative banks and savings banks usually apply further principles in order to be able to calculate the value of the loan. In most cases, savings banks are bound by lending principles that vary from state to state. And the cooperative banks often use guidelines set by the Federal Association. Private banks mostly use their own internal control systems in order to be able to carry out a special valuation.

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