How do you take the interest into account from the purchase of the land until moving in?

Hello everyone,

I am currently creating a cost overview for our new construction project. There are already very good overviews here. Only the interest payments for the loan during the construction period regularly seem too low to me. Maybe someone can shed some light on this:

Roughly, my calculation looks like this:
Land 280,000
House 220,000
Taxes, notary 22,000
Additional costs 78,000
Total costs 600,000
Equity 70,000
Loan therefore 530,000

According to the builder, it conservatively takes 1.5 years until moving in. Land and purchase incidental costs must be paid immediately, some according to construction progress so that on average I have drawn a loan of around 450,000 euros until completion. The following interest do I have to pay for this:

450,000 * 2% interest * 1.5 years = 13,500

That is a considerable item, which I have not seen this high in other overviews. Am I wrong? And even if it only takes 1 year in the end, that is still almost 10,000 euros.

How have you accounted for this item?
Many thanks and have a nice

An interest-free period is agreed with the bank, e.g. 12 months. During these 12 months, the money is spent and that's it. No costs. If the loan is not drawn in time, commitment interest will be charged. These are usually higher than the agreed nominal interest rate of the loan.

You agree with the bank on a free availability period, e.g. 12 months. During the 12 months, you spend the money and that's it. No costs. If you do not draw down the loan in time, commitment interest applies. These are usually higher than the agreed nominal interest rate of the loan.

But that is only true to a limited extent, right? For the money already drawn down, the normal loan interest is due – or have I misunderstood that so far? Of course, not from the start, but for every euro drawn down.

The calculation would be correct if you were to draw the full 450,000 euros from the very first day. However, since it will take the mentioned 1.5 years until you have fully utilized the amount, the total interest amount will be lower. In the first few months, you will "only" have to pay interest on the approximately 300,000 euros for the property including ancillary purchase costs, if you fully finance this amount (I would cover the ancillary purchase costs with equity). After that, the additional invoices will arrive over time.

on average, I have drawn down a loan of about 450,000 euros by the time of completion.

How do you come to the conclusion that you will have drawn down on average 85% of the loan within the 1.5 years until completion? That seems extremely high to me, even given your (unusually high) land cost-to-construction cost ratio. Besides, it depends on the overall situation how you handle it. In our case, we paid for the land with equity and only at the building permit stage did the first creditworthy expense arise (the first installment to the builder). On a loan of 15k disbursed, we pay 30 € interest per month, we just pay that. And since our initial repayment will be higher than the current cold rent, the worst that can happen to us until full disbursement is that our savings rate decreases. Only after full disbursement until the rent ceases will it get a bit uncomfortable. The commitment interest rates are also not much higher than the loan interest rates (3% vs. 2.4%) that they could seriously put us under pressure. You just shouldn’t push too many points back in the calculation with "oh, we’ll pay that out of current income or save during the construction phase."

I would cover the incidental purchase costs with the equity

Why only the incidental purchase costs? Apart from the fact that banks often require the equity to be used first, it makes no sense at all to let money sit uninterest-bearing in the (presumably daily allowance) account while simultaneously paying loan interest for it. I would rather pay almost everything myself directly. Only hold back what is foreseeable that you will need for small stuff. Kitchen and furniture invoices are usually accepted by the bank as a reason for disbursement (just not as production costs).