Commitment interest: the free period is negotiable, not fixed.

Commitment interest accrues on undrawn parts of the loan

A property loan is not always paid out in a single sum. For a new build, a purchase from a developer or a refurbishment, the money flows in instalments that track construction progress. Many months often pass between approval and the last of those drawdowns. Throughout that time the bank holds the full amount available. On the part not yet drawn it charges commitment interest.

The basis for this is the loan agreement. § 488 of the German Civil Code obliges the lender to make the amount available to the borrower „in der vereinbarten Höhe zur Verfügung zu stellen", in the agreed amount. Holding the money available is precisely the service being paid for. The bank refinances the funds and cannot lend them elsewhere during that time. The provision says nothing about the rate or the starting point. Both follow from the contract.

Projects with staged drawdowns are therefore the ones affected. When an existing property is bought with a single disbursement after the purchase contract, commitment interest rarely matters in practice. When you build, it is the norm. In contracts and price lists you will also see the singular Bereitstellungszins, the term Bereithaltungszinsen, or, less often and mostly in a commercial context, Bereitstellungsprovision. All mean the same thing.

The interest-free provision period sets the starting point

No lender charges commitment interest from day one. What is agreed is a window in which the approved money sits available at no cost. That window is the bereitstellungszinsfreie Zeit, in many contracts also called bereitstellungsfreie Zeit. Only once it has expired and money is still outstanding does the charge begin.

When the period starts is the first detail many borrowers skim over. Two variants are common: from the conclusion of the loan agreement, or from the day the lender is ready to disburse, meaning all disbursement conditions such as registration of the land charge have been met. Weeks can lie between the two. Which one applies is stated in your contract, and the answer shifts the entire timetable.

The second detail is the duration, and here the market picture is worth a look. The commonly quoted range is three to twelve months. That range is accurate but unweighted. In November 2025 Stiftung Warentest found that more than half of all banks waive commitment interest for a full year, and that 24 free months are included with roughly one in ten lenders. Twelve months is therefore the standard case. An offer showing three months sits below what the majority of banks grant without a surcharge. That is not a law of nature, it is the outcome of a negotiation.

Rate and calculation follow a fixed monthly percentage

Commitment interest is agreed as a percentage per month and runs alongside the borrowing rate. According to the Stiftung Warentest survey, most lenders have charged 0.25 percent per month, or 3 percent per year, for decades. Individual institutions sit below that, others above. The rate that applies to you is in your loan agreement and in the lender's published price list, not in a comparison portal.

The calculation itself is simple: the undrawn portion of the loan multiplied by the monthly rate and by the number of months affected. Three variables drive the result, and you can influence two of them.

• The outstanding amount falls with every drawdown. Drawing large instalments early lowers the base, but from that point you pay the full borrowing rate on the drawn part.
• The number of months is the gap between the build time and the agreed period. That is the lever this article is about.
• The rate is fixed once the contract is signed. Whether it is calculated to the day or per commenced month is also governed by the contract.

Because commitment interest only ever applies to the balance still outstanding, it falls of its own accord as the build progresses. The most expensive phase is the one just after the period expires, while the bulk of the loan is still sitting available.

The build schedule determines the period you actually need

This is where advice parts company with a product list. Most guides on this topic explain which periods are available in the market. The real question is a different one: how long do you need the period? That figure is not in the bank's tariff, it is in your build schedule. If you are buying from a developer, you can even read it off the statute.

Section 3 (2) of the German Estate Agents and Property Developers Ordinance allows a developer to take the purchase price „in bis zu sieben Teilbeträgen entsprechend dem Bauablauf", in up to seven instalments matching construction progress, drawn from thirteen individually listed build stages. The first instalment of 30 percent of the contract sum falls due after excavation work begins, or 20 percent where a heritable building right is involved. Twelve percent is earmarked for readiness for occupancy, concurrently against transfer of possession. That establishes that a substantial share of the money is drawn late in the build, and therefore how long the period has to carry.

In our advisory work at ME Finance we sort the required period by drawdown pattern. Four patterns cover the great majority of cases.

Buying an existing property

A single disbursement once the purchase contract and the land register security are in place. The required period is short. It only becomes critical if registration of the priority notice or the land charge is delayed. The standard period is usually enough.

Buying from a developer

Drawdowns follow the statutory instalment plan. The period needed matches the planned build time from the first instalment through to readiness for occupancy. The advantage: that span is written into the developer contract and can be quantified before the financing conversation.

New build with individual trades

Without a developer there is no statutory cadence. Drawdowns follow the invoices of the individual trades, which is exactly why the dates scatter more widely. One trade dropping out pushes the following ones back. The required period is regularly longest here, because the buffer has to be larger.

Refurbishment after purchase

Two phases inside one loan. The purchase price portion flows early, the refurbishment portion only with the tradesmen's invoices. The refurbishment portion therefore sits available longest and effectively determines the required period on its own. Looking only at the purchase date understates it.

The underlying rule is the same in all four cases. The period you need equals the planned time up to the final drawdown, plus a buffer for delays. That figure belongs in the financing conversation, and it belongs there before the interest rate is discussed.

Longer periods cost a surcharge on the borrowing rate

The interest-free provision period is not a gift, it is a pricing component. Stiftung Warentest puts it briefly: most banks extend the interest-free period in exchange for rate surcharges. The extension is available, but it has a price, and whether that price is worth paying cannot be answered in the abstract.

The trade-off follows a simple asymmetry. The surcharge applies to the entire loan amount and across the whole fixed-rate period, so across many years. Commitment interest applies only to the balance still outstanding and only for the months by which the period is exceeded. Two rules of thumb follow, and they rarely appear in the offer documents.

• Buying a short extension of a few months means paying the surcharge across the entire fixed-rate period to cover a manageable number of months. That calculation frequently does not work out.
• Where there is a genuine risk of delay in the build, the surcharge buys planning certainty for a stretch in which most of the loan is still outstanding. Here an extension is more likely to pay.

Timing decides. As long as no contract has been signed, the period is part of the offer and therefore open to negotiation. Afterwards it is a contractual term, and a later extension is an amendment you have no claim to. That is precisely why the question of the period belongs in the same round as the question of the rate. We obtain offers for your property finance with a period that matches your build schedule from the outset, rather than renegotiating it later.

Four ways to reduce commitment interest

Commitment interest can rarely be avoided entirely, but the amount is open to influence. Four approaches work, and they act at different points in the process.

Negotiate the period before signing

The most effective lever, because it costs nothing as long as it is pulled in time. Anyone who knows the period required by their build schedule and treats it as a criterion when comparing offers will in many cases get the right period without paying for it. Twelve months is the market standard and therefore the benchmark.

Align drawdowns with construction progress

Draw instalments only when the matching invoice falls due. Money drawn too early sits in the account and costs the full borrowing rate rather than the lower commitment interest. Money drawn too late extends the time in which the base amount stays high. The rhythm of the invoices is the right rhythm.

Review the order of equity and loan funds

Both orders are in circulation and both can be right. Using equity first saves borrowing interest but keeps the loan balance outstanding for longer and risks commitment interest. Drawing the loan first avoids that but means paying the full borrowing rate sooner. What decides is the difference between the two rates and whether the period is exceeded at all. With a sufficiently long interest-free period, using equity first is usually the cheaper route.

Landlords deduct it as income-related expenses

For let properties, commitment interest is tax deductible and reduces the tax burden. Section 9 of the German Income Tax Act counts debt interest among income-related expenses where it is economically connected to a category of income. For an owner-occupied property that connection is missing and no deduction applies. Assessing the individual case is a matter for your tax adviser.

If a delay emerges during the build, an early conversation with the lender is the last effective step. Where the time still does not suffice, bridge finance can cover the gap. That is the more expensive solution and therefore the last one. If the loan is never drawn at all, what falls due is no longer commitment interest but a non-acceptance fee, the Nichtabnahmeentschädigung. That is a different and as a rule considerably larger cost item.

Refinancing and forward loans follow different rules

Commitment interest is a feature of initial financing with staged drawdowns. In a refinancing, the outstanding balance is repaid in a single sum at the end of the fixed-rate period. A lengthy stretch in which money sits available unused does not normally arise.

With a forward loan, a rate is locked in for a point in the future. The bank charges for that waiting time as well, but not through commitment interest. It charges a forward surcharge on the borrowing rate. The two cost items are often confused, because both are paid for money that has not yet moved. The difference: the forward surcharge is agreed for the entire term, while commitment interest accrues only for as long as a portion remains undrawn.

There is one exception. Where a refinancing is combined with modernisation work and therefore paid out in stages, the same rules apply as for a new build. At that point the period is back on the table. If a build, a refurbishment or a refinancing is coming up for you, we look at the schedule before comparing offers. Get in touch before you sign.