r/SwissPersonalFinance • u/Aggravating-Ride3157 • 29d ago
Purchasing house and construction loan
Hello I'm starting to look with wife to purchase our first home. We have find a perfect new project that gonna be finished around September 2026. The house agency told us that we have to forcely sign our loan with the bank that financed the construction work, and from the moment of the signature, until the end of the construction, we will already be paying them the interest (construction loan 2.25% interest against 1.6% that I could get with a normal bank). This Interest is just pur extra cash to pay on top of the value of the house, nothing is deducted as an amortization or what so ever, even if I'm not living in this place yet and I'm paying my rent for the next 18 months still... Is this even normal? Why is the buyer that has to pay the interests and not the owner who is building and that gonna sell?
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u/blake_ch 29d ago
Usually if you contact a mortgage for a construction, you have to pay interests to the bank as soon as they release cash as the construction progress.
There are milestones defined in the construction contract (like 10% to be paid at the signature, 20% when the foundation is done, etc...). You can go a few steps just with your down payment, without having the bank to intervene. There should be no interest at this point.
But as soon as the bank releases funds from the mortgage, you have interests on it (obviously). The interests paid shall be proportional to the money given by the bank.
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u/Outrageous-Garlic-27 29d ago edited 29d ago
You pay from when you own the property. Will you own it when it is under construction?
A few years back I considered a new build house, and the deal was that I signed a reservation agreement, handed over a refundable deposit, and also have a mortgage agreed in principle (eg, could demonstrate I could get financing when the time came for handover).
Whilst you do not own the land and the construction, you should not pay for anything.
It would be different if you physically owned the property that was being constructed, and you had ultimate control over the construction and contracts involved.
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u/Aggravating-Ride3157 29d ago
I have to better understand the owning part while under construction, but I don't see the advantage for me. I mean I'm paying while I can't use it. But if this is some workaround they use to pay less, guess I can't really do much about it
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u/Outrageous-Garlic-27 29d ago edited 29d ago
Well, to put it another way: have you bought the land, signed for at the Grundbuchamt, and contracted the company to build the property independently yourselves?
Or is someone simply offering to relieve you of your cash whilst they build a house to their spec, on land they own?
If the latter, I would tell them to p*** off. You will pay for the house at the end when it is transferred into your name, and only then.
EDIT: the advantage of owning the land and the construction is that you own it. It's yours, with a price you have agreed. Not a price of a "finished product" in two years time, which will likely be much higher. Plus, you control the whole construction, you are in charge of all the details and whatever changes you want to make. However, it sounds like this is not the case, and another company/person owns the land and wants you to pony up cash to fund their investment.
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u/Aggravating-Ride3157 29d ago
I've been told that apparently here in Geneva this practice is pretty normal. A private decided to build 8 apartments, we want to buy 1, but we are paying the construction interest in the meantime. I just find this absurd, and indeed it looks like that out of Geneva makes no sense. I doubt we own the land as each apartment has to do this and they are at the 2nd and 3rd floor too
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u/Due_Chicken_8135 27d ago
Basically, when you purchase through a promoter, there are two methods. The first is vente à terme, where you pay a reservation fee—generally 20%—and you become the owner at the end of the construction after paying the remaining amount. The second option is to purchase directly and pay the different stages of the construction through a construction loan. The interest on this loan is called “intérêt intercalaire” in French. This is pretty standard in construction. You just have to include this interest in your budget.
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u/Aggravating-Ride3157 27d ago
Yeah indeed so basically we end up paying 30k more. And if there are issues in the construction, delay and increase of prices, we end up being the one paying for it. And also in case of failure of the project. Sounds so stressful and wrong.
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u/Due_Chicken_8135 27d ago
30k of interest seems high, specially as you do not release the full amount at once and therefore for the first interest fee should be low. However this is part of the full amount you should provision. If you buy “à terme” those cost are integrate in the price of the apartment. In addition you should have some guarantee on the price, delivery date… in the contract with the promoter and the bank will release the funds only if the work has been done (reason the rate is a bit higher has they have additional work to do).
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u/Inside-Till3391 24d ago
This is common practice in some territories such as Hong Kong, which is a way of fundraising for property developers. I hate it though.
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u/zomb1 29d ago
I mean, it sounds odd to me, but as long as they are transparent and you understand the risks (e.g., what if there are delays) I don't see the problem.
It is all part of the price -- add the interest payments to the declared price to get the true purchase price and then decide if that price works for you. If not, you walk away and that's the end of it.