Construction costs are currently skyrocketing

Have you already signed them or are the still rising interest rates also affecting you? Otherwise, yes, it all sounds very familiar to me, the way you describe it ...

We have already signed. Advantage, secured slightly lower interest rates. Disadvantage, if we do not build and do not need the amount, we also have to pay a "penalty" again.

We have already signed. Advantage, secured slightly lower interest rates. Disadvantage, if we don't build and don't need the amount, we also have to pay a "penalty" again.

Could you maybe tell me the name or location?

A used property also consists of compromises. How long the renovation will take and how high the costs are is also written in the stars there.

Difficult situation. I would probably try to downsize and save where possible, like selling off a condominium, lower energy standard. If the buffer is still not big enough, abort. Maybe it will look better in one or two years.
Lack of a garden is not nice with children, but compensation and alternatives can be created there. Missing money will be difficult. Hard to print.

Are you building with a general contractor or a developer?
Interest rates, fixed interest period?

All these are factors that influence the decision.
At some point, the marginal costs for a demolition are too high. (Land, additional costs, financing, etc.)
Do you have no possibility to award trades yourself?
There aren’t actually that many.