If you’re considering taking out a bridging loan, you’ll need to know how to calculate your costs. With our bridging loan rate calculator, you can get a clearer overview of your finances.

A bridging loan typically lasts for a maximum period of twelve to eighteen months. Borrowers may pay their interest in a few different ways.

One option is to pay monthly. The borrower pays the interest separately rather than adding it onto the balance of the loan.

Another option is rolling up the interest so it all becomes due when the borrower finally repays their loan.

The final option is a retained interest plan, also known as rolled up interest. This involves covering the interest payments for each month until a previously agreed date. The borrower then pays back the entire amount once the money becomes due.

There are further costs of a bridging loan that are worth exploring.

Typically, borrowers pay higher prices for a bridging loan as it’s a short-term finance option. Therefore, lenders set a bridging loan rate of interest that is typically higher than that on other finance products.

Typically, bridging loans have a monthly rate of interest of approximately 0.5-1%. Furthermore, other fees are added on. These include a bridging loan arrangement fee of around 2% to cover the costs of administration. There may also be a valuation fee and exit fee to bear in mind. As well as those, there may also be the cost of using solicitors in some cases to add on.

We have more details of the full cost of bridging loan on another article.

Bridging loans are popular with property developers, homeowners, and landlords as well as investors, business owners, and entrepreneurs. People take out bridging loans to purchase properties both at auction and on the open market. They’re open to people who have both good credit and those with a background of adverse credit.

People use bridging loans for multiple purposes. These include:

• Exiting completed development projects
• Refinancing existing bridging loans
• Growing a property portfolio
• Moving home when in a property chain
• Raising capital to pay bills or fund a business
• Purchasing a property development
• Refurbishing a new or existing property

Bridging loans are short-term financing solutions. They provide funds for borrowers over a short timeframe to “bridge” a gap. When the loan term ends, the borrowers must fully pay off their loan. Alternatively, they can take out another type of financing to cover the costs.

Loan providers take many factors into account when deciding who is eligible to take out a bridging loan. Customers should have a clear strategy for repaying their loan and property to put up as security.

In some cases, they must show some proof of their income. Prospective borrowers must demonstrate their experience or provide a business plan if the loan is for a commercial project. They must also prove a successful track record of property development if they require funds for this type of project.

Usually, bridging loan providers give their decision to prospective borrowers within a 24-hour period of receiving the application. A Madison Carter Finance Bridging Loan does this on many occasions in just 4 hours. Borrowers must then get a property valuation before drawing down the loan subject to the conveyancing process.

Usually, bridging loan providers give their decision to prospective borrowers within a 24-hour period of receiving the application. A Madison Carter Finance Bridging Loan does this on many occasions in just 4 hours. Borrowers must then get a property valuation before drawing down the loan subject to the conveyancing process.

Borrowers take out these short-term loans against their property that already has a mortgage on it. Often, people use them to pay for home extensions, lost conversions, and other refurbishment projects.

Once the borrower completes the work, they can then switch the loan to one at a lower rate of interest with a main stream lender. They can then pay off that loan in the standard way. Homeowners who are carrying out expensive home improvements use this type of loan frequently.

The primary difference between closed and open bridging loans is the plan in place for repayment. Borrowers taking out open bridging finance don’t have a plan in place at the time of the agreement. Meanwhile, they do have a repayment plan and exit strategy in place when taking out closed bridging loans. As lenders have greater security with a closed bridging loan, they usually charge a lower rate of interest.

When you calculate a bridging loan, you need to consider other factors such as:

• Net Loan vs Gross Loan
• Time horizon with rolled up interest

Other metrics to test the viability of a scheme include:

• Return of Equity
• Return On Costs
• Cost to Equity
• Development Margin
• IRR
• NPV

Our manual calculation will give you a broader view of your financial position.