A bridging loan quoted at 0.85% a month does not cost 10.2% a year. Fees, the way interest is charged and the amount actually released on day one all move the real number. This works out what a bridge costs in total and what you will need to redeem it.
Bridging loan cost calculator
Non-regulated, business purpose bridging. Nothing is sent anywhere and nothing is stored.
1. The loan
2. The fees
Why the monthly rate is not the cost
Two bridges at the same monthly rate can cost very different amounts. The rate is one of five or six numbers, and the ones that move the total most are usually the arrangement fee, the exit fee and how the interest is charged. On a twelve month facility a 2% arrangement fee adds the equivalent of more than two months of interest at 0.85%.
The other thing the rate hides is how much you actually receive. On a retained interest deal the lender takes the whole term of interest off the advance before it reaches you, so a £500,000 facility can release well under £450,000. If you need a specific sum to complete, work backwards from the net figure rather than the gross.
The three ways interest gets charged
Retained
The lender calculates interest for the full term and deducts it from the advance on day one. Nothing to pay monthly, but the net release drops sharply and you have paid for months you may not use. Some lenders refund unused retained interest on early redemption and some do not, so ask before you assume.
Serviced
You pay interest monthly and the full advance is released, less fees. Best net release of the three, but it needs demonstrable income to make the payments, which is exactly what a lot of bridging borrowers do not have on the asset in question.
Rolled up
Interest is added to the balance each month and compounds, so nothing is payable until redemption. The net release matches serviced, but the redemption figure is the largest of the three and it grows the longer you take.
The exit is the part lenders actually underwrite
Bridging is priced on how you get out, not on how you get in. A sale with a buyer already lined up prices differently from a refinance onto a term facility that has not been agreed, because if the exit slips you are into default rates and extension fees that dwarf everything this calculator shows. Run the numbers on a term a few months longer than you expect to need and see whether the deal still works.
What this does not include
- Default interest or extension fees if you go past the term.
- Early redemption charges, or any minimum interest period.
- Stamp duty, agents fees and other transaction costs outside the finance.
- Whether the lender will actually lend at that loan to value on that asset.
The annualised figure shown is the total cost divided by the cash you actually receive, spread over the term. It is a comparison figure, not an APR, and on a short bridge it will look high because short term money is expensive per year even when the cash cost is modest.
When a bridge is the wrong tool
If the timescale is genuinely short and the exit is certain, bridging earns its cost. If you are using it because a term lender said no, it usually just makes the same problem more expensive later. A business loan or a revolving credit facility is cheaper for working capital, and a commercial mortgage is cheaper for anything you intend to hold. Our commercial mortgage affordability calculator will show whether a term facility would cover it.
Get a bridge priced properly
Bridging pricing moves with the asset, the exit and how quickly you need to draw. We are a whole of market broker and we are paid by the lender on completion, so send us the deal and we will tell you what the market will actually do rather than what a rate table says.
Or try our other calculators.
This calculator is provided for illustration only and does not constitute financial advice or an offer of finance. Figures depend entirely on the terms you enter. Bolton Business Finance Ltd is not authorised or regulated by the Financial Conduct Authority and arranges non-regulated, business purpose bridging only. We do not arrange regulated bridging secured on a borrower’s own home. Always read the facility agreement in full before signing.
If the bridge is funding building work
A bridge used to buy and refurbish is only half the deal. What decides whether it works is the refinance at the end, and how much of your cash comes back out. Our BRRR calculator models both stages together, including the rental cover test that caps the refinance regardless of the new valuation.
Where the work is structural, an extension or a ground up build rather than a refurbishment, a bridge is usually the wrong tool. Staged development finance charges interest only on what has actually been drawn, which on a long build costs considerably less. Our development finance drawdown calculator models the drawdowns month by month.
For a term facility on a property you intend to hold, the commercial mortgage affordability calculator shows the maximum loan on both lender tests.