Buying a new-build home

A construction deposit or building deposit can be seen as a loan specifically reserved for the construction of your new-build home. With a mortgage for a new-build home, the entire mortgage will be deposited in a construction deposit. This money is set aside in a separate account to accomplish the purchase of the land, as well as to pay the contractor to build the home and any additional work. As a result, the amount in the construction deposit shrinks as construction progresses.

With a construction deposit, you receive interest on the amount left in the construction deposit. This is generally the same interest rate as today or 1% lower. Because the amount of the construction deposit gradually decreases, the interest compensation will also gradually decrease. As a result, you will have lower mortgage costs in the early stages and these keep increasing until the home is completed.

When buying a new construction home, your mortgage is already running during the construction phase because a construction deposit is needed to buy the land and pay the contractor to build the home. On the amount still in the construction deposit, you will receive interest. You will therefore pay interest on the amount no longer in the construction deposit. The house will be built in phases. For each completed phase, the contractor will invoice you for part of the contract price. As a result, the construction deposit becomes progressively emptier and you will gradually pay more interest. So this means that you are already paying for the new-build home that you cannot yet use immediately. The difference between the mortgage interest you pay and interest compensation is called interest loss during construction.

It is possible to co-finance the loss of interest during construction in the mortgage. In that case, you pay no interest during construction, but you do pay repayments of the mortgage. Exactly how this is structured depends on the type of mortgage chosen. If you choose to co-finance the loss of interest during construction, this portion is not tax deductible. However, co-financing the loss of interest can still be useful if you already have a mortgage or pay rent and do not have enough savings to pay the double monthly costs during construction.

When buying a new home, it is also possible that you will have to pay construction interest. You pay construction interest to the contractor when he or she has advanced costs for the home. The construction interest that may be charged is already included in the price of the new home. This makes it possible to co-finance the construction interest and the mortgage interest on it is tax-deductible.