In this article you will learn how you can capitalize interests during construction. This means, that no interest payments will take place during the construction phase.
- First create a debt object. To do this, go to GM Valuation's "Debt" section and click "New Entry" in the "Debt" area.
- Choose "Construction Loan" as Loan Type.
- You can define multiple issuance dates when choosing "Construction Loan" as loan type. By clicking on the "+" button you can add more dates.
- The last recorded date is the consolidation date. At this time, the entire loan is paid out. Thus, the construction loan is converted into a long-term loan. The redemption profile and loan period can be determined using the input fields "Fixed Redemption Profile" and "Loan Period from Consolidation Date".
Get more information in our Knowledge Center article: How to work with relative date relations
- Activate the option "Capitalize interest during Construction". If this option is activated, accrued interest & commitment fees during the construction phase (between the first and last issuance date) are capitalized and added into the nominal loan amount at the consolidation date. The final loan amount consisting of the nominal loan amount plus the capitalized interests & commitment fees will be amortized according to the defined repayment method. Consequently there are no interest payments during the construction phase.
- When the option "Apply Compound Interest During Construction" is activated, there will be compound interest applied on accrued interest during the construction phase (between the first and last issuance date).
- Enter the remaining inputs of the debt object and click on "Create" to confirm the entries.