Construction loan

News from DL MoneyPark and information on the financial market and Swiss romande real estate

Author : Kristen


At the end of construction, the financial institution will proceed to consolidation, meaning the conversion of your  construction loan into a mortgage loan. Certain documents are required by the financial institution for each step, therefore a statement of construction completion and confirmation from all government offices will need to be paid.

Understand that the financial institution for the mortgage can be different from the one that finances construction work with a construction loan.

In order to insure the future rent, the majority of financial institutions offer the opportunity to reserve interest rates, generally a maximum of two years before consolidation. An increase known as a "forward" is added to the interest rate of the day. This covers the potential risks of rate variation during the construction period. To use this type of system, it is essential that the construction completion date is known and fixed. In the case of delay or even a stop in construction, the funds will still need to be paid on the planned date (forward) and the mortgage interest will be due. If the date of the fund transfer is deferred, a penalty will be required.

 Certain institutions will propose that you continue with partial consolidation each time that a loan layer is disbursed. This practice corresponds to the implementation of mortgage financing directly related to the use of construction credit. Partial consolidation could prove legally and economically interesting in the event of an anticipated increase in rates. However, it does not allow you to consider competitive rates at the end of construction.

Only recently have banks started offering loan contracts that offer the same rates during construction and at the point of consolidation. This solution offers real advantages in the case of future rate uncertainty and avoids potential problems related to the late delivery of the real estate property.


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