Construction interest for new buildings

When you buy a new house you first pay construction interest before the mortgage interest. This is a fee you pay to the contractor for the costs of your new home in the period before the mortgage is finalized. The construction interest consists of 2 parts that you can finance in different ways. How does that work exactly?

Construction interest

You pay construction interest to the contractor as compensation for the costs he advances for the construction of your home. This interest usually lies between 4-8%. The exact percentage for the new construction project you have in mind is known to the real estate agent, so you can ask him. Construction interest consists of 2 parts:

Financing fee

In the period before you signed the purchase agreement and the mortgage deed the contractor already makes costs. He has bought the land and has perhaps already started work. At this time you do not have access to your mortgage so the contractor is not paid. The cost of advancing the costs incurred plus the interest on this amount together make up the finance charge. This interest is not tax deductible and is already included in the purchase price.

Deferred interest

In the period between signing the purchase agreement and arranging the mortgage, the contractor is still making costs for building. You cannot pay him yet, because you do not have the money of the mortgage at your disposal. Over this period the contractor also charges interest on the costs he makes. This is called deferred interest. This interest is tax deductible if you pay it yourself. You have the option to finance the interest in the mortgage, but then it is not tax deductible. It is therefore more advantageous, if your financial situation allows, to pay this interest with your own money.

When the mortgage is signed, you no longer have to pay construction interest. The money of your mortgage goes into the construction deposit. From here the further costs of the construction are paid. Want to know more about how this works exactly? Then read on here!

If construction starts after the contract is signed, there is often no interest on the construction deposit. You do pay interest until the completion of the house, but this is (almost) equal to the interest you get on the amount that is still in the construction deposit.

Are you orienting yourself on the new housing market? In this blog you can read more about the costs that are involved in a newly built house.