Bridging finance is quoted as a monthly rate, which makes it look cheaper than it is. The real cost is the interest for every month you hold the loan plus the fees on the way in and out. This calculator adds them up and shows the cash you actually receive.
A worked example
Borrow £150,000 for 12 months at 0.85% a month, with a 2% arrangement fee, no exit fee and £1,500 of valuation and legal costs. Interest is £1,275 a month. How the interest is handled changes the cash you get and the total cost:
| Interest type | Cash on day one | Interest | Total cost |
|---|
| Retained | £130,200 | £15,300 | £19,800 |
| Rolled-up | £145,500 | £16,036 | £20,536 |
| Serviced | £145,500 | £15,300 | £19,800 |
The total cost is 13.2% of the loan a year with retained or serviced interest. With retained interest, though, you only receive £130,200, so the cost works out at 15.2% of the cash in your hand. Rolled-up interest compounds, so it costs £736 more here and the gap widens the longer the loan runs.
What each input means
- Monthly interest rate. Charged on the loan each month. Multiply by 12 for a rough annual rate before fees.
- Term. How long you expect to keep the loan. Be realistic. Sales and refinances often take longer than planned, and each extra month costs another month of interest.
- Arrangement fee. A percentage of the loan, usually taken from the advance.
- Exit fee. Some lenders charge a percentage when you repay. Not all do, so it is worth comparing.
- Other fees. Valuation, the lender's legal costs and your own.
Plan the exit first
A bridging loan is repaid in one go, usually from a sale or a refinance onto a longer-term mortgage. If the plan is a buy-to-let refinance, the new lender will test the rent at its stress rate. Run the figures through the buy-to-let mortgage calculator before you borrow, and use the BRRR calculator to see how much money stays in the deal after a refurbish and refinance. Our guide to buy-to-let stress tests explains the rent test.
Regulated or unregulated?
A bridging loan secured on a home you or a close family member live in, or will live in, is usually a regulated mortgage contract, overseen by the FCA. Bridging for an investment property, or through a company, is usually unregulated. The cost maths in this calculator works the same way for both.
Common mistakes
- Comparing monthly rates alone. A lower rate with a bigger fee can cost more on a short loan.
- Forgetting retained interest reduces your cash. Check the net advance covers the purchase price and costs.
- Assuming a short term. Model a few extra months to see what a delay costs.
- Leaving out the exit fee. It is charged on the way out, when cash is often tight.
This guide is for information only and is not financial, tax or mortgage advice. Rates, allowances and lender criteria change, so check current figures on GOV.UK or with your lender, and take independent advice before you act.
