From Rolled Up to Retained: Understanding Loan Interest

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Whether you’re considering taking out bridging finance or any other kind of loan, it’s important to understand the associated costs in order to make a decision on what will work best for you.

That said, our bridging finance brokers have set to work and have defined the different kinds of interest you will have to choose from when using a commercial brokerage like ourselves.

How Much Does a Bridging Loan Cost?

The price of a bridging loan differs from case to case and will depend on the amount of money you borrow, as well as the fees charged by your lender of choice, the LTV, your credit score and the type of security you provide. When you’re required to make payments will also differ. Therefore, different loan packages will suit different needs.

For example, some bridging loans will require interest payments each month and the loan to be paid in full at the end of an agreed term. This is a popular choice among people who have a regular cash flow and will be able to meet the monthly interest payments, but do not have the funds to pay the full amount off yet.

However, this option is not for everyone. Alternatives included rolled up interest and retained interest loans.

What is Rolled Up Interest?

Bridging finance with interest roll up simply means that there will be no monthly interest payments required. Instead, interest is ‘rolled up’ and paid as a lump sum at the end of the loan term. This can result in interest being compounded and repayments at the end of the loan being larger than if interest was spread across the loan term.

Loans with rolled up interest are a popular choice among borrowers who do not have regular cashflow, and therefore cannot cover regular interest costs, however they have a clear exit strategy which will allow loan repayment and interest cover i.e. the sale of a property.

What is Retained Interest?

A retained interest bridging loan works somewhat as a middle ground between the two previously mentioned options.

In order to make monthly interest payments more manageable, some lenders will allow you to retain a set amount of the loan representing a number of monthly interest payments. Assuming lending criteria is met, the number of months can be chosen by the borrower, though this amount will still be part of the capital sum and therefore interest will be charged on it.

On recovery of the loan, if the retained interest (or part of this) hasn’t been used, the lender may provide credit to an equal value.

Need Help Finding Bridging Finance that Suits Your Needs?

If you’re not sure what type of loan would meet your requirements or which lenders offer the best rates, enlist the services of our friendly bridging finance brokers. Let us do the hard work for you.

Speak to our dedicated bridging finance team today on 02920 766 565 or by requesting a call back here.

For more property tips, check out our finance & investment blog.

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