There is one significant difference between the way interest rates are displayed for bridging loans and standard mortgages. In the case of bridging loans interest rates are displayed as a monthly figure whereas a normal mortgage will have its interest calculated on an annual basis.
The reason for this is that bridging loans normally have terms of between 12 and 18 months and the interest is paid on your monthly balance. In the majority of cases interest will only be paid for the duration of the loan. This means that if you are able to pay off your loan after 12 months, interest will only be due for that period, even if the term of your loan was originally 18 months. It’s worth noting that some lenders will charge 1 month’s interest or 1% of the loan amount as a facility exit fee. There are lenders that don’t charge exit fees and those that don’t charge this fee if the loan has run for longer than 3 months.
How is interest Calculated and Added to a Bridging Loan
Differing from a standard mortgage, the interest on a mortgage bridging loan is calculated using three distinct methods.
Serviced Interest – Just like an interest only mortgage interest is paid every month and not added to the loan. If this is your preferred method you will need to provide the lender with proof of income to assure them you can afford the payments.
Rolled Up Interest – When you choose this method the interest will be charged every month on the outstanding balance of your account. However you will not be required to make monthly interest repayments, they are deferred for a period usually the term of the loan. This means that the interest is rolled up and you repay it as a lump sum at the end of the agreed loan period. Because the interest will be compounded the end of term payment will in most cases be larger than if you were paying the interest monthly.
Retained interest – When you take out a bridging loan on a retained interest basis, you will not be required to make any monthly payments. The interest is added to the capital amount of the loan by the lender, and repaid at the end of the term of the loan. If you pay back the loan before the end of its term you would be entitled to a rebate on the interest.
If you are still unsure which type of bridging loan would best meet your needs, our expert team will be only too happy to discuss the different options available to you, and advise you on which one best meets your specific requirements. Types of bridging loan include Mortgage Bridging Loan, Auction Bridging Loan and Land Bridging Loan.
What Loan Fees and Costs are Associated with Bridging Loans
There are fees associated with any bridging loan, however the actual amount you will pay is dependent on the lender and your particular circumstances. Listed below are some of the fees you will typically have to pay.
Arrangement Fees – this is what you will pay to the lender for arranging your loan this is typically around 2% of the value of the loan. In most cases this can be added to the loan.
Administration Fee – This will be charged by the lender and the amount payable is dependent on your choice of lender but can be £0 to £995.
Valuation Fees – Your lender will want to carry out a valuation on the property you are using as security. Depending on the lender you are using, the property value, and how quickly you need the funds your valuation fee will typically be zero cost if a desktop valuation is completed or between £350 to £5,000 if a desktop valuation can’t be completed. Valuations tend to cost over £2,000 when a specialist valuation known as a Red Book Valuation is required.
Lender Legal Fees – When you take out a bridging loan you will be liable for the lender’s legal fees, and you will have to provide an undertaking to make payment of these fees. These typically range from around £500 – £2000 depending on the property value and how complexity of the transaction.
Applicant Legal Fees – These are the fees that you pay your solicitor for acting on your behalf.
Broker Fees – If a broker fee is applicable for your loan we will disclose this to you as part of our initial disclosure procedure.
The rates listed above are those typically associated with bridging loans. However, as we alluded to earlier any fees due on your loan will be dependent on the lender you are using and your personal circumstances. The team here at Pyxis capital will be only too happy to discuss your particular project with you and offer advice and guidance on the best options open to you. Use out quick and easy Bridging Loan Calculator to get an idea of how a Bridging Loan may look for you.