Commitment interest

When a bank offers you a loan, they do so not just out of niceness, of course, but because they make a profit by charging you interest. However, they can only charge you interest when you actually use your loan. Especially when it comes to construction financing, however, it is often not the case that you use the entire sum at once.

That's where the commitment interest comes into play. This is a kind of compensation or fee for parking your unused money with the bank. Fees of around 0.25% of the loan amount per month for loan amounts not yet drawn down are not uncommon. However, the commitment interest is only charged after a certain period of time. So, it's best to check with your bank how long the interest-free period is for your loan.

By the way, as an investor, you're in luck, because this commitment interest is tax-deductible if you rent out the property.


Find useful real estate terms and abbreviations here.

Go to dictionary