Mortgages
Dec 20, 2022
Are you planning to renovate or buy a new-build property? Then you often have to deal with a construction depot account that is linked to your mortgage. Below is an explanation of how it works and what it exactly is.
1. What is a construction depot account?
A construction depot account is a special account/part on which you reserve an amount for a planned renovation or purchase of a new-build property. It is basically part of your mortgage. You then pay the invoices for the work and materials from the construction depot account. The invoiced amount will be deposited into your own account or into the account of the contractor.
2. How does a construction depot account work?
Imagine that you have purchased a renovation property or a new-build property. Then you often take out a construction depot account with your mortgage. The amount you include in the account is determined by the work you wish to have carried out and the market value of your home (before and after renovations). The lender deposits the amount that you have withdrawn in the account.
During the work you declare the invoices directly to the lender. The invoiced amount is then debited from the account. Once the amount has been used in full, the account will be closed automatically. If you have any remaining amount, it will be repaid on your mortgage.
3. How do you receive money from the construction depot account?
After a part of the renovation or the complete renovations have been carried out, you can fill in a special (online) form from your lender and add and declare a copy of the invoice. Certain lenders offer the possibility to do this entirely online without having to send/ mail a form. You can then choose whether you want to transfer the amount to your own account or to the account of the contractor/supplier.
4. When do you need a construction depot account?
In principle, an account is required for a renovation or if you buy a new-build property. During a renovation, the renovations to be carried out are taken into account and what effect these will have on the market value before and after renovation. You can also finance such a renovation with your own funds. Please contact us to discuss the advantages and disadvantages of this.
When purchasing a new-build property, a construction account is required. The costs of building (purchase price) of the house and additional work are included in a construction depot account.
Schedule an appointment to discuss this together.
5. What are the costs for a construction depot account?
There are no costs for applying for or having an account with your mortgage. The monthly costs are however affected, after all, you borrow more so your monthly costs are higher. If you have purchased a new-build property, interest will be charged on the construction depot account. You will receive interest on the amount that has not yet been withdrawn and you will pay interest on the amount that has been withdrawn.
6. Are there rules for a building fund account?
The rules/ conditions differ per lender. But in general, they are pretty much the same. Always read the conditions carefully. There are, however, a number of points to keep in mind, namely:
- The term of an account can vary between 6 months up to 2 years.
- The interest on your account is in most cases equal to the interest rate on your mortgage, check this carefully when taking out such an account.
- View the conditions for declaring the funds and whether you can submit them easily.
Would you like more information about how a construction depot works and do you perhaps want to renovate or buy a new-build property? Please contact us to discuss the options.
