Construction loan

When you apply for a construction loan, the bank requires you to submit documents relating to the construction. This will include building drawings, building permits, a financing plan, documentation of debt-servicing capacity and similar.

Once the bank has approved the application and received all the necessary documents back from you with the correct signatures, the construction loan will be made available.

Disbursement of the construction loan occurs when you receive an invoice in connection with the construction, approve it, and then send it to the bank for payment.

It is often required that a surveyor is appointed to review construction accounts, check invoices, and ensure that there is consistency between the values invested in the building and the drawdown on the construction loan account. The construction loan must only be charged for costs directly related to the construction work. It would be a breach of contract if other costs are financed via the construction loan.

In most cases, you will be able to cancel the credit agreement within 14 days. You must pay interest for the period you have utilised the credit. The registration fee will not be refunded.

You can at any time choose to terminate the construction loan agreement and repay the loan balance. This is also a form of right to cancel. Upon such repayment, you pay interest for the credit you have utilised up until you have repaid it. However, you will not receive a refund of the bank's fees or other costs.

You pay interest on the credit you have used at any given time. In addition to the interest, you pay a commission each quarter. The commission is calculated on the entire credit facility.

The credit normally runs for one year, and the bank's funding costs may change. Therefore, the bank has the right under the agreement to change your loan interest rate. The bank may then change the rate at any time, both up and down. If the rate increases, you will receive two months' notice before the rate changes. The same applies to the rates for commission and ongoing costs.

The agreed credit limit must not be exceeded. If you wish to change the plans so that the project becomes more expensive, or if unforeseen events occur, you must raise this with the bank as soon as the situation arises. Therefore, keep the bank informed on an ongoing basis of all changes to the construction plans, such as progress, costs, major changes to building plans, and changes to drawings.

Contact the bank as soon as possible if you are unable to pay the instalments on the construction loan. Together we will find a solution that helps you in your situation.

If you default on the loan, the bank will charge interest on overdue payments on the instalment after the due date. The default interest rate is set by public regulation and is in practice higher than the agreed interest rate you have on the construction loan. If the default is significant, for example if several instalments are not paid, the bank has the right to terminate the construction loan. In that case, the default interest rate will be calculated on the drawn amount on the construction loan. In addition to interest on overdue payments, fees will apply in accordance with the Debt Collection Act.

In the event of default on the Construction Loan, you risk the bank demanding the sale of any collateral that you or others have provided as security. You as borrower/co-borrower will be liable for the loan until the entire Construction Loan has been repaid.

In special cases, the bank has the right to demand that the credit be repaid in full after 14 days' notice. This applies, for example, if you significantly breach the credit agreement, you become bankrupt, or you should pass away. The bank will then notify the borrower, or heirs as applicable, with a deadline to rectify the situation.

In certain cases, the bank may demand that the credit be repaid in full after a short notice period. The bank may block the credit for further drawdowns and require that matters be put in order before it is reopened.