How Is Bridging Loan Interest Calculated?
Unlike a conventional mortgage which uses an annual percentage rate (APR), bridging loan interest is quoted as a monthly rate. A rate of 0.75% per month equates to approximately 9% per year on a simple basis (9.38% compounded). Because bridging loans are short-term - typically 1 to 24 months - this structure allows for straightforward cost calculation over the actual loan term.
The Three Interest Methods
Retained interest: The lender calculates the total interest for the entire loan term upfront and deducts it from the gross loan amount. You receive less money but make no monthly payments. If you repay early, some lenders will refund the unused retained interest.
Rolled-up interest: Interest accrues monthly and is added to your outstanding balance. The total - original loan plus accumulated interest - is repaid in one lump sum at the end of the term. This compounds more than retained interest but means you receive the full gross loan amount.
Serviced interest: You pay the interest monthly as it accrues, like a conventional mortgage interest payment. This keeps your balance flat and is the cheapest option overall, but requires you to have monthly income to meet the payments.
| LTV Band | Regulated Residential | Unregulated / Commercial | Light Refurb |
|---|---|---|---|
| ≤50% LTV | 0.55–0.70% pm | 0.65–0.80% pm | 0.65–0.75% pm |
| 51–65% LTV | 0.65–0.85% pm | 0.75–0.95% pm | 0.75–0.90% pm |
| 66–70% LTV | 0.75–1.00% pm | 0.90–1.10% pm | 0.90–1.10% pm |
| 71–75% LTV | 0.90–1.20% pm | 1.00–1.30% pm | 1.00–1.25% pm |
| Adverse credit | 0.95–1.50% pm | 1.10–1.60% pm | 1.10–1.50% pm |
Additional Bridging Loan Costs to Budget For
Interest is only part of the total cost of a bridging loan. You should also account for:
Arrangement fee: Typically 1–2% of the gross loan amount, charged by the lender for setting up the facility. Usually deducted from the advance or added to the loan.
Valuation fee: The lender requires an independent RICS valuation of the security property. This typically costs £500–£2,000+ depending on property value and complexity.
Legal fees: Both you and the lender need separate legal representation. Budget £1,000–£3,000 for each side depending on loan complexity.
Exit fee: Some lenders charge an exit fee of 0.5–1% of the loan on repayment. Many lenders do not charge exit fees - check this when comparing quotes.
Broker fee: At DBF, we charge no upfront broker fee. Our fee is typically paid by the lender upon completion.