Bridging loans are a popular way to access fast funding for property purchases or developments, especially when traditional mortgages won’t work due to tight deadlines or unique circumstances. But they’re not cheap, and if you’re considering one, it’s essential to understand how the costs stack up.
In this guide, we’ll break down how bridging loan costs are calculated, the typical fees involved, and how tools like the bridging loan calculator we have available for you to usecan help you get an accurate estimate before committing.
What makes up the cost of a bridging loan?
The overall cost of a bridging loan depends on a few key factors, and it’s often more than just the interest rate. Here’s what to consider:
1. Monthly interest rate
Unlike standard loans, bridging loans charge interest monthly, not annually. Most interest rates fall between 0.55% and 1.5% per month, depending on your circumstances, credit profile, and the lender. Where the interest is retained, it usually means the interest is compounded too.
Example:
Borrowing £100,000 at 1% per month over 6 months:
- Month 1 – 1% of £100,000.00 = £1,000.00
- Month 2 – 1% of £101,000.00 = £1,010.00
- Month 3 – 1% of £102,010.00 = £1,020.10
- Month 4 – 1% of £103,030.10 = £1,030.30
- Month 5 – 1% of £104,060.40 = £1,040.60
- Month 6 – 1% of £105,101.00 = £1,051.01
Total interest for 6 months – £6,152.01
The longer the loan term, the more interest you’ll pay.
2. Arrangement fee
Lenders usually charge a one-off arrangement or facility fee. This is typically 1–2% of the total loan amount.
Example:
2% of £100,000 = £2,000
Some lenders allow this to be added to the loan, but it still adds to the overall repayment figure.
3. Valuation fee
To protect their investment, lenders require a professional valuation of the property being used as security. Expect this to cost between £250 and £1,000+, depending on the property’s value and location.
4. Legal Fees
You’ll need to cover legal fees for both yourself and, often, the lender. This can range from £1,000 to £2,000 or more, depending on the complexity of the transaction.
5. Exit Fee (Sometimes charged)
Most lenders on bridging loans do not have an exit fee or an early repayment charge, however some lenders charge one, which could be a flat fee or a minimum amount of interest.
Always check the terms carefully so you’re not caught off guard.
Bridging loan cost example
Let’s say you take out a £100,000 bridging loan for 6 months with:
- 1% monthly interest
- 2% arrangement fee
- £1,500 in legal and valuation fees
- No exit fee
Breakdown:
- Monthly interest: £6,152.01
- Arrangement fee: 2% = £2,000.00
- Valuation fee: £500.00
- Legal/valuation: £1,000.00
- Total estimated cost: £9,652.01
- Total repayment: £109,652.01
This is a simplified estimate, but it shows how quickly costs can add up.
Use a bridging loan calculator to estimate costs
To help you get a clearer picture of what you might repay, you can use the bridging loan calculator we have available. This handy tool allows you to:
- Input your loan amount, term, and interest rate
- See an instant estimate of interest and fees
- Understand how much you’ll need to repay in total
It’s a great first step before speaking with a lender or broker.
Final thoughts
Bridging loans can be incredibly useful, but they come at a cost. Calculating that cost properly means looking beyond the headline interest rate and factoring in arrangement fees, legal costs, valuation fees, and potential exit charges.
Before moving forward with a bridging loan, take the time to crunch the numbers carefully. Use our bridging loan calculator to help you work out the real cost, so there are no surprises later on.
