As with any loan, interest rates vary quite widely depending on some of the following factors:
- Amount of Loan
- Level of Collateral / Security
- Duration of Loan
Bridging Loans Interest Rates are Generally Higher than a Traditional Mortgage
Because of their nature as a short term loan, bridging loans are a very different form of finance than a mortgage and come with higher interest rates.
In fact, as a short term loan their rates are usually given as a monthly fee, rather than a traditional APR (annual percentage rate).
Current Monthly Interest Rates (as of February 2019)
- United Trust Bank – 0.55 to 0.98%
- Shawbrook Bank – 0.55 to 0.98%
- LendInvest – 0.59 to 0.99%
- Octopus Property – 0.60-1.15%
- Greenfield Capital – 0.65 to 0.95%
- Oblix Capital – 0.65 to 1.40%
- Funding 365 – 0.65 to 1.70%
- Masthaven – 0.68 to 1.98%
- Tuscan Capital Bridging Loan 0.75 to 1.25%
- Kuflink – 0.75 to 1.75%
- Regentsmead Development Finance – 0.75 to 1.50%
What’s the Difference Between Fixed or Variable Rates?
Before you secure your bridging loan you’ll need to work out whether it’s on a fixed or variable rate.
A fixed rate means the same interest applies across the full term of the loan, no matter what changed occur in the external market. If you can secure a good rate at a fixed time, this obviously brings greater security with it, in terms of being aware of your repayments at all times.
A variable rate means that the interest rates are liable to change, which means you need plan for a higher rate of repayment as a possibility.
How do Bridging Loan Lenders Calculate Their Interest?
There are different industry practices regarding calculating and applying the rate of interest, so you’ll have to check the individual providers to be sure.
Generally speaking, there are two methods:
Rolled Up Interest
Rolled up Interest means the interest is simply calculated up front and added to the balance of the overall loan.
This is a popular practice in bridging, since borrowers want an easy figure to manage without having to factor in monthly payments.
This also means that interest isn’t charged to the interest, which can happen with the retained interest alternative.
Most bridging loans are calculated these days using the retained interest model.
Essentially, the borrower also borrows the interest payments due on the loan, when the finance is taken out. This money is then ‘retained’ by the borrower who uses this to cover the monthly payments.