How to reduce the double burden when building a house

Whoever builds a new house will almost always have to bear a double burden of ongoing rent and the financing costs for the new building project. We show you how you can reduce this double burden as much as possible.

Unlike the purchase of a completed property, the costs of a new construction project have to be paid in installments. This starts with the purchase of the property and continues with the construction of the house. Until you move in, there are usually many partial payments to construction companies, tradesmen, energy suppliers, etc. To. Depending on the amount of the existing equity capital and the structure of the financing, different amounts of construction period interest are incurred here. This is the name of the interest you have to pay to a bank until you move in.

What are construction period interests?

Construction period interest is the interest you have to pay to the bank until the completion of the construction project. These are made up of the interest on disbursed loan amounts and, if applicable. Accruing provision interest. Depending on the agreement with the bank, at some point you will have to pay interest on the loan amounts not yet disbursed, i.E. Interest for making the money available to you. These commitment fees are a real headache, as almost all banks in germany charge an interest rate of 3% per year for them – in some cases three times the cost of the loan itself.

It's the payment plan that counts!

Very few contractors ask for payment on completion and handover in one sum. Instead, partial payments are almost always to be made. That's understandable, because a construction company has to make advance payments for materials and wages. If you build with one architect and many individual craftsmen, you don't need to have any hope that he or. You don't get the bill until the end of construction.

Builders create a payment plan under the realtor and builder ordinance (MABV). Builders should have the contractor outline, at least roughly, when to expect which payment installments from the start of construction. In the case of an architect's house, the architect or the builder should be responsible. The architect should prepare such a payment schedule. On the basis of this payment schedule, it is then possible to determine – at least approximately – when which payments are to be made and where the money for them is to come from, or. From when it must be available. From this it can be deduced again how high the double burden can become.

By the way: if a construction company demands full payment only upon completion, this is not necessarily more favorable than payment in partial amounts. Here it depends on whether and in what amount the construction company calculates a surcharge for this.

Interest on the loan but no repayment!

As soon as a euro is disbursed from a loan provided, you have to pay the interest rate agreed in the contract for it. This interest is billed on a daily basis at the end of the month and then collected from your account. During this payout phase, however, you "only" pay interest on the amount paid out. Repayment will not begin until the loan is paid in full. In the case of kfw loans or public development loans, this can also be well after full disbursement ("grace years").

If you want to save on interest, the first thing you should do is use your own funds to pay bills. Only when these own funds have been used up will the loans be drawn down. But be careful: some banks stipulate a minimum payment amount in the loan agreement. If you then "come around the corner" with smaller bills, you may have to pay them. Pre-finance yourself at a high cost (z.B. About a dispokredit).

Commitment interest?!

As soon as a loan is approved by the bank, the clock starts ticking. The loan agreement specifies the point in time from which you have to pay interest on the funds provided. This is interest on the portion of the loan that has not been disbursed by that date. Given the generally low interest rates, the interest rate for this provision is quite steep, almost always 3% p.A. . You could call it a historic interest rate, because the 3 percent was also charged 20 years ago.

You can avoid (or at least reduce) this interest if you set the date as far in the future as possible. People then talk about the "provision interest-free period". Banks deal with this issue in very different ways. There are banks that set the default interest-free period at 6 months, for example. If you want a longer period without interest, you may have to pay for it. Pay an interest surcharge. Other banks, on the other hand, agree on a "FC-free period" of 12 or even 18 months as standard – and without interest surcharges – for a new construction. But for this these banks are, if necessary. Already at the interest rate more expensive than banks with a lower FC free time.

If you want to keep the double burden and overall borrowing costs as low as possible here, you need to compare financing offers very carefully. A loan with a long time without provision interest may end up being significantly more expensive than the offer with a shorter FC free period. To be able to calculate this as accurately as possible, you need -see above- a precise payment and payment schedule.

This is all too complicated for you and you need advice? No problem! We would be happy to work with you to determine how you can calculate and reduce the double burden on your new construction project. And we will also find the bank(s) that will make you the most favorable offer for your building project, all things considered. Just contact us by using our online request form.