The bank approved your loan long ago—but the money will not be drawn down until months later: for a new build, as construction progresses; for a purchase, after a postponed notarization appointment. Many banks charge commitment interest for precisely this waiting period on the amount not yet drawn down. This item appears in hardly any financing example calculation, but can quickly cost several thousand euros. We explain how commitment interest is calculated, when it begins to accrue, and how you can negotiate the interest-free period strategically.
What is commitment interest?
Commitment interest is compensation for the bank keeping your approved loan available for drawdown even though you have not yet used it. The bank refinances the money on the capital market and makes it available to you (Section 488 of the German Civil Code)—for keeping it available, it charges ongoing interest on the portion of the loan that you have not yet drawn down.
Important: The amount of commitment interest and the duration of the interest-free period are not regulated by law. You and the bank freely agree both points in the loan agreement—they are therefore negotiable.
You should not confuse commitment interest with non-acceptance compensation: You pay commitment interest if you draw down the loan later. Non-acceptance compensation becomes due if you do not accept an approved loan at all and the bank is left bearing its refinancing loss.
When does commitment interest accrue?
Commitment interest becomes a problem whenever a long time passes between loan approval and full disbursement. Typical situations include:
- New build: The bank disburses the loan in installments (tranches) as construction progresses. Completion often takes twelve months or more.
- Purchase from a property developer: You make payments according to the installments under the Broker and Property Developer Ordinance, step by step as construction progresses.
- Postponed notarization appointment: If notarization or registration in the land register is delayed, the money remains unused longer than planned.
- Renovation and modernization: Here too, the money usually flows in several stages.
- Forward and follow-on loans: You secure the interest rates today but do not draw down the loan until several months later.
When buying a move-in-ready existing property, the Risk, on the other hand, is low: Here, the loan is generally paid out in one lump sum at the notary appointment.
How high are commitment interest charges? Amount and calculation
The market standard is a rate of 0.25 percent per month, equivalent to 3 percent per year. Some banks charge slightly less; the rate is usually between 0.15 and 0.25 percent per month. The calculation always applies only to the amount you have not yet drawn down—and only after the interest-free commitment period has expired. The calculation is simple: undrawn amount multiplied by the monthly rate multiplied by the number of months.
An example: You finance a new-build property with 400,000 euros and have agreed on an interest-free commitment period of six months. Construction is delayed, so after these six months, 250,000 euros have still not been drawn down. At 0.25 percent per month, that amounts to 625 euros—for every additional month in which this amount remains available. Since you draw down the money in tranches as construction progresses, the assessment basis decreases with each payment. Nevertheless, over several months, this quickly adds up to 1,500 to 3,000 euros—an amount that does not appear in any interest-rate advertising.
A special rule applies to promotional loans: Under the KfW Homeownership Programme (124), the state development bank KfW charges a commitment fee of 0.15 percent per month—but only from the 13th month after approval. Until then, you can draw down the loan free of charge (as of: 2026).
Cleverly negotiate the interest-free commitment period
The most important lever against commitment interest charges is the interest-free commitment period—the period during which the bank does not yet charge interest on the funds made available. The length of this period depends on the project and the bank:
- Purchase of an existing property: often only 2 to 3 months, because the money flows quickly.
- New build: generally 6 to 12 months, in individual cases up to 24 months.
- KfW loan: 12 months from approval, after which the commitment fee applies.
Ask proactively about the longest possible interest-free commitment period when requesting a financing offer—many banks grant it at no extra charge if you ask early. Also choose the timing of the loan approval realistically: If you only conclude the loan agreement once the construction project is imminent, you shorten the waiting period from the outset.
Avoiding commitment interest: the most effective levers
With some planning, commitment interest can be significantly reduced or avoided altogether:
- Agree on a long interest-free period: The simplest approach—ideally, record this in writing before concluding the contract.
- Schedule the disbursement plan realistically: Call down tranches promptly once the respective construction phase has been reached.
- Control the timing of the commitment: Do not conclude the loan unnecessarily early.
- Compare offers: The lowest borrowing rate and the longest interest-free period rarely come from the same provider—calculate both together.
- Check delays caused by third parties: If the developer postpones completion, clarify whether you can contractually have the additional costs reimbursed.
Advantages and disadvantages of a long commitment-interest-free period
A long commitment-interest-free period initially sounds advantageous—but it is not always completely free. You should weigh up these points:
- Advantage – planning certainty: If construction or the notary appointment is delayed, no additional costs arise.
- Advantage – no pressure to draw down: You do not have to draw down tranches early just to save interest and pay no borrowing interest on unused funds.
- Advantage – more flexibility: Especially for new builds with an uncertain schedule, a long period reliably protects against surprises.
- Disadvantage – possible interest surcharge: Some banks charge a slightly higher borrowing rate for a particularly long period.
- Disadvantage – false sense of security: If the period ends before the final disbursement, commitment interest applies in full.
- Disadvantage – limited choice: Not every bank offers long periods; comparing options is worthwhile.
Is commitment interest tax-deductible?
That depends on how you use the property. Anyone who moves in themselves cannot deduct commitment interest from their taxes. The situation is different for a rented property: Here, commitment interest counts as debt interest and therefore as income-related expenses for income from letting and leasing (Section 9 (1) EStG).
The Federal Fiscal Court clarified that commitment interest is ancillary borrowing cost and does not form part of the acquisition or production costs—but it is deductible only if there is a genuine intention to rent out the property (BFH, judgment of September 6, 2016 – IX R 19/15). So, if you intend to rent out the property from the outset, you should declare the interest in your tax return.
FAQ on commitment interest
When does the bank charge commitment interest?
Only after the agreed interest-free commitment period has expired. This period begins when the loan is approved and lasts between two and twelve months, depending on the contract; for new builds, it may be longer.
How high is commitment interest usually?
The market standard is 0.25 percent per month, or 3 percent per year, calculated on the undrawn loan amount. The exact rate is stated in your loan agreement.
What is the difference between commitment interest and non-acceptance compensation?
You pay commitment interest for the waiting period if you draw down the loan later. Non-acceptance compensation, on the other hand, becomes due if you do not use an approved loan at all.
Is commitment interest charged on a KfW loan?
Yes, although only at a later stage: Under the KfW Home Ownership Programme, the commitment fee is 0.15 percent per month and is not charged until the 13th month after approval.
Can I deduct commitment interest from my taxes?
Not for a property you occupy yourself. If you rent out the property, commitment interest counts as income-related expenses and is deductible as interest on debt.
Conclusion: A small item with a big impact
Commitment interest is an easily overlooked but well-manageable cost item in construction financing. By choosing the loan approval date realistically, agreeing on a sufficiently long interest-free commitment period and drawing down the funds promptly, you can keep these costs low. Therefore, never compare financing offers solely based on the nominal interest rate; always consider the interest-free commitment period as well – this way, you avoid unnecessary interest on money that has not yet been disbursed.