Delay in building materials - extend provisioning interest

Hello dear house building forum,

we are currently in the process of finalizing our construction financing. The construction start is planned for July 2022. (Mainly self-managed, contracts are awarded individually to trades)

Given the current situation regarding material shortages, we are wondering whether an extension of the interest-free period for the commitment fee would be sensible. Regarding the details:

1 year interest-free period for the commitment fee
2.4% nominal interest rate for 20 years on €280,000

2 years interest-free period for the commitment fee
2.5% nominal interest rate for 20 years

Additional costs at the end of the term: approx. €5,500 more

I find €5,500 still relatively manageable. This makes it easier to cope with one or two months of delivery delay. On the other hand, you don’t want to give away money.

If anyone is in a similar boat or has an opinion, I would appreciate any contribution :-)

What is your commitment interest rate? Common rates are 1.8% or 3%, and you could end up paying commitment interest for quite a long time to get the 5500€ out. The commitment interest only applies to the 50 or 100k that is still outstanding at that time.

How high are the commitment fees in relation to the loan interest rate? For me, they were at 3% in January. Have the banks adjusted accordingly? Otherwise, the interest rate is almost the same.

Exactly, the commitment interest rate is 0.25% per month, so 3% per year.

The fact that we can pay quite a long time of commitment interest for the 5,500€ was also our reason for initially not extending. Considering the acute material shortage (although no one knows what will happen in the summer), it made us start to reconsider.

However, 70,000 equity capital is also included in the construction project. We would use that at the end with 12 months of commitment interest (the bank advisor said that is doable). With 24 months, you could use this first and thus save some interest.

If you can bear a double burden (previous rent and installment), I find debt capital better than equity capital. Then you start with the repayment earlier. If you have the option to use debt capital first, commitment interest is even less important.

On construction sites it is not uncommon: Firstly, things turn out differently and secondly, than you think. Maybe this will help you too: I would try to extend the interest-only grace period with the bank free of charge by 3-6 months and then sign. Since you already have some flexibility in the allocation of funds with 70k equity and the difference between 2.4 and 3% interest is rather low. In case of doubt, with some banks you can then already draw the money through a cost estimate and submit the invoice later.