When exactly you have to start paying back your home loan depends on several factors. First, the start of repayment is affected by whether you are building or buying a house. On the other hand, the time depends on what you have agreed with the financing bank in your loan agreement. It is difficult to make a general statement about it. We will explain the common types of repayment to you.
Loan repayment when buying a house
When you buy a house, the question of when the first installment is paid can be answered quite easily. Because in the course of buying a house, the sum for the property and the house is paid out in one fell swoop, so that you can pay the entire sum for the property. This means that payment in installments will begin and begin after the loan is paid out. You can find the exact time in your bank’s financing contract.
But it can also happen that you have arranged a different date for the first installment with the bank. It is therefore advisable to take a look at the contract documents to be on the safe side.
Loan repayment for a new building
However, if you are about to build or want to build a house, a little more explanation is needed to time the first installment. Because in the course of building a house, the bank transfers the money piece by piece depending on the construction phase and not in a large amount as when buying a house. If, for example, the floor slab is finished, the bank transfers the amount X to you or the corresponding construction company, and if the roof is finished, the amount Y is due and transferred.
Most of the time, you start paying interest on the bank by paying the first installment of your construction loan. For the period between the start of construction and the move-in, this means a double financial burden for the building owners, since rent for the current apartment often has to be paid. What you have to pay to the banks during the construction phase is only the interest – so you do not pay off the pure loan during the construction phase.
Let’s say a certain section of your house has been completed. For this, 50,000 dollars are now due, which the construction company would like to have from you. You submit the invoice to the bank and the bank transfers the money to the construction company. Then interest payments are due for the money paid out – but only for this subtotal of 50,000 dollars and not yet for the entire loan amount. In our example, you pay two percent interest a year. We show you exactly what this means for your wallet every month:
USD 50,000 x 2% interest: 12 months = around USD 83 interest per month
From the time of payment, the bank collects around EUR 83 interest per month from your account. If you need another 25,000 dollars from the bank in the next construction phase, the interest will then be added to the 83 dollars per month. This continues until the full loan amount has been paid out to you. Then you start with the repayment – that is, with the repayment of the actual loan. The rate that will be debited from your account from this point onwards consists of a portion of the repayment agreed with the bank and (in our case) two percent interest.
Agree and observe the commitment-free time
The bank has the money that you borrow from it for building a house ready for you. During this time, the bank cannot use or invest the money in any other way. As a rule, this can be paid with so-called commitment interest. A certain interest rate – for example 0.25 percent – of commitment interest is then calculated per month for the loan amount that has not yet been called. This can drive up the cost of mortgage lending.
It is therefore important that you agree on a provision-free period with the bank. Because then this additional interest does not accrue within twelve months, for example. However, this also means that you have to use up the entire loan within this time, otherwise commitment interest will accrue from the 13th month. This is especially important to know if construction should be delayed. Therefore, also agree with the developer on a precise schedule for when which construction phase should be completed. This will save you unnecessary interest payments.