Demand currently exceeds supply in the real estate market. Therefore it means for prospective buyers to be fast. That's why more and more prospective buyers of existing properties are securing their construction financing loan before the purchase negotiations have been concluded. Or the construction financing contract is already signed before the construction of the home starts. But already with the signing of the construction financing loan the clock starts ticking. Because that is when the time limit for commitment interest begins to run. And one does not call then within this period the entire credit, Bereitstellungszinsen become due. This can go quite in the money and the credit increases unplanned and often not calculated in. But you can do something against it.
Commitment interest can be a good deal for the bank
Paying interest on money promised by the bank because you don't call it in on time? Unfortunately, this is part of the everyday life of builders and real estate buyers, whose purchase negotiations drag on unplanned. Commitment interest rates can make ivespecially long construction projects expensive. The problem: a construction loan is earmarked for a specific purpose. This means that you cannot simply have the entire loan amount transferred to you. Parts of the loan amount are not transferred by the bank until corresponding invoices for construction phases and trades are available or when the purchase agreement for an existing property or condominium is actually signed by all parties. If the payment margins specified in the construction financing loan are exceeded, banks charge additional interest for this overdraft. And that can be expensive.
What are commitment interest?
Commitment interest is compensation for banks that miss out on interest payments due to extended deadlines. Because the interest charged by the bank, which is locked in as part of the loan agreement, is only calculated on the amount that is actually paid out by a certain date. If the construction loan is at z. B. 300.000 euros fixed, but z. B. Only 10 percent paid out, the interest is also only paid for these 30.000 euros due, The bottom line is that for term loans – such as z. B. an annuity loan – would receive less interest payments in the end as calculated.
Commitment interest is not included in the effective interest rate of the loan. Thus, commitment interest can become a good deal for banks, as the interest rate for it is in most cases higher than the loan interest rate. The debit interest is currently 3 percent per year. The current annual effective interest rate, on the other hand, is less than two percent on average. For a loan amount of 300.000, the additional interest to be paid adds up to 9.000 euros per year.
Can you avoid commitment interest?
It is not difficult at all to avoid these uncalculated additional costs. In order to avoid paying this interest on even the smallest of delays, there is a component called the "provision interest free period". Then the borrower only pays interest on the amount actually disbursed at that time. The borrower must not only be aware of this possibility, but in some cases must also negotiate it with the lending bank before signing the contract.
The time spans of the provision interest-free periods vary from bank to bank: from one month to one year, in a few cases even 15 months – are offered by banks. But these times must be written into the loan agreement before signing the construction financing offer. In addition, it is possible to individually negotiate an extension if one z. B. know from the outset that the new building will take longer because, for example, you will be doing a lot of the work yourself. Although this may increase the interest rate offered – the bottom line can be far more favorable than falling into the "commitment interest trap". Also important to know: The granted extension of time already starts when the contract is signed. From then on the clock is ticking.
Also possible: Use equity only later
Construction financing loans also stipulate the order in which debt and equity capital are to be used. Standard is to have to use equity first before the loan amount can be used. But if one is allowed to use the borrowed capital first, one can cushion possible delays with the own funds then used later on. Here's another way to avoid commitment interest. That's why, especially for new buildings, it's important to keep an eye not only on the provision interest-free period, but also on the exact definition of when to use debt and equity capital. Both should be considered before opting for what appears to be the lowest interest rate offered. Because the non-calculated interest for the provision of the borrowed capital quickly destroys the interest advantage of the supposedly most favorable interest rate.
The special trick: use for the follow-up financing interest free time
Since banks offer a commitment interest free period even of 12 months, you can use this for follow up financing. If the interest rate is particularly favorable one year before the end of the initial financing, this can be secured for the follow-up financing without having to conclude a forward loan, the interest on which costs one or two percentage points more. Forward loans are always an option when an interest rate turnaround is imminent and interest rates will be higher in the future. However, these offer the option of securing the most favorable interest rates even 2 or 3 years before the initial financing expires, while follow-on financing, for which one takes advantage of the provision interest-free period option, can normally only be completed one year in advance. In both cases applies however: If the follow-up financing contract with forward option is only once signed, one cannot withdraw any longer, without a non-acceptance remuneration for the bank becomes due.
Before you decide: Take advantage of a bank-independent consultation
Specialized, bank-independent construction financing brokers such as Accedo AG can help you with questions about initial and follow-up financing in the best possible way to find the best construction financing that is most favorable for you. These brokers know the daily updated offers of more than 400 construction financing banks, know how and where to secure maximum provision interest-free periods and how to find the most favorable alternative for follow-up financing. They also negotiate customized funding for you with maximum flexibility. This then also includes questions about the highest possible and free unscheduled repayment options or rate, repayment and interest rate adjustments during the term of the contract. Here's how to make your construction financing customized, flexible, affordable and secure. It is not the cheapest interest rate offered that counts, but the overall package that decides how much money you can save in the end. This consultation is always free with Accedo AG – whether or not you then complete your construction financing with Accedo AG.
Commitment interest can make the construction loan more expensive if you miss the deadlines. Therefore, choose financing with the longest possible term.