Cost trap commitment interest
First everything goes according to plan: the construction financing is concluded at the appropriate conditions, the property thereby paid for and the construction of your own four walls begins. Then construction stalls because a trade doesn't show up as agreed and you have to look for new tradesmen – including, of course, initial meetings, bidding, comparison bids and renegotiations. Therefore the next part of the financing does not need at the contractually fstgelegt time … and thus it strikes, the cost trap Bereitstellungszins.
What is the commitment interest?
The commitment interest (or also commitment interest or commitment commission) is a type of penalty interest for non-compliance with contractual payment dates. There are generally two different ways to do this:
- The chargeable commitment interest is calculated on the undrawn portion of the loan.
- The non-creditable commitment interest is calculated from the total loan amount.
The amount is often up to 3% per year, or 0.25% monthly and sets depending on the bank earlier or later. Usually 6 months are provision-free time, some lenders grant meanwhile 12 months without accruing provision interest.
The reason for the costs incurred is quite simple: the lender invests the loan so that it is available at the agreed time. If not used, it must be permanently available and cannot be invested for profit. This results in a loss of interest for the lender, which he makes up for with the commitment interest rate.
How easily does the cost trap of commitment interest strike??
Example: Mr. Huber takes out a loan for 350.000 euros to build his own home. Due to the favorable interest rate situation he can finance this credit very well. After an investment of about 100.000 Euro, the construction company does not progress according to plan. Delivery problems of the materials are annoying, but against it Mr. Huber can do now also nothing. The whole thing drags on and the deadline for the next financial distribution passes by. Now the bank comes and points out to Mr. Huber the commitment interest rate described in the contract. This states that after 3 months of delay, a chargeable commitment interest of 0.25% per month will apply. So in our example 625 euros (on the remaining 250.000 euros). Several thousand Euros are quickly lost, just because the construction company has problems with its suppliers.
How can you protect yourself from the cost trap of commitment interest??
There is only one correct statement for this: read the contract carefully. The longer the period is, in which the bank does not require a commitment interest, the more expensive is usually also the entire construction financing. However, one should always be aware that one is powerless against some delays. Delivery problems are one thing, an unexpectedly early onset of winter could eat up even more money.
Some banks have already reacted to the current interest rate situation: 3% commitment interest on a construction loan that itself costs just 1.8% is simply excessive. Pioneers here are Santander Bank and PSD Bank Westfalen-Lippe, among others. They provide construction loans for up to one year without charging extra interest. The same applies as everywhere else: compare providers and also study the fine print carefully so that you don't end up like our exemplary Mr. Huber.
The easiest way is to seek advice from a bank-independent credit broker. They have an overview of the offers of many banks and can respond to specific requests regarding the commitment interest rate.