When to use equity?

Then the bank will also not agree to it. We had the property (more precisely, together there are 3 properties) as equity plus 40% of the construction costs also as equity, so a pretty good starting position. Although that was almost 2 years ago now, not much will have changed. The problem is that the 12-month term does not start with the loan approval and certainly not from the start of construction, but with the date of the loan application. And you usually do that before commissioning. Then the documents for the building permit have to be prepared, the building permit itself can also take about 3 months, and then until the construction company gives the green light. And until the first invoice, 6 months can easily pass from the loan application. Then you use up your equity, and if the construction company is not the fastest, a year will be over in no time and the nasty penalty interest will come.

That is exactly the problem. In our case, it can be further complicated by the fact that the rent for the previously occupied property continues to run. In view of many uncertainties (case processing by the building authority, weather, other delays), no one will give you a guarantee in advance that the 12 months will be met. No one will take these risks off your shoulders.

And that is preferably done before the contract is awarded.

Why is that?
For the contract award, a financing confirmation is sufficient.
Especially if I have equity which I have to/want to contribute, it should be in my interest to minimize the risk of commitment interest by concluding the financing as late as possible.
We started construction without signed financing and paid the first installment payments entirely from equity. Financing was only concluded under the currently valid conditions when the available equity was used up. Although you are literally "naked" for a certain period, without equity and without signed financing, in our case (at times of falling interest rates 15/16) we saved about 0.5% on the interest rate. + no commitment interest, which would have hit us if the financing had been concluded before the start of construction. Relatively "easily" saved money.

Penalty interest

What exactly are "penalty interest"?

The colloquial term "penalty interest" refers to the interest that becomes due after the interest-free provision period. Currently, this is usually 12 months. If the loan has not been fully drawn by then, this interest will become due. For this reason, it would be helpful if the equity could be spent only towards the end.

Why is that?
A financing confirmation is sufficient for commissioning.
Especially if I have equity that I need/want to contribute, it should be in my interest to minimize the risk of commitment interest by closing the financing as late as possible.
We started construction without signed financing and paid the first installment payments entirely from equity. Financing was only completed at the currently valid conditions when the available equity was depleted. You are then literally "naked" for a certain period, without equity and without signed financing, but in our case (at times of falling interest rates 15/16) we saved about 0.5% on the interest rate. + no commitment interest, which would have affected us if financing had been completed before construction started. Relatively "easy" saved money.

Interesting variant. I have to check whether this could be a realistic option...