How do I use a bridging loan calculator?

• You can enter your requirements, which will calculate the amount you can get. It will also show monthly interest costs and the total interest over the full term. Lastly, it will display the LTV (Loan-to-Value) ratio you can secure with the information you have entered.

• The accuracy of the calculator will be dependent on your input. Typically, bridging finance covers 12 months (with a minimum period of one month) – this is important to consider when calculating, as you can pay monthly interest during the entire loan term, or you can “roll-up” interest payments by paying before the full-term ends. 

• You will want to follow up on an indicative quote with guidance from specialist brokers. We can help with the specifics of your case and find the right lender for you – as we can better tailor a quote to your situation. A bridging loan calculator will provide an approximate guide, and is only used to illustrate an indicative cost.

How are bridging loans calculated?

A lender's decision to grant a bridging loan is based on how much you want to borrow against the value of your property and the borrowing period. However, interest rates may be increased depending on the lender's criteria and risk. In addition, extra fees associated with bridging loans must also be accounted for, which will affect the cost to you overall.

What factors can impact interest rates? 

Interest rates depend on a lender’s risk factor; there is no usual rate for bridging loans, and it differs on a case-by-case basis – here are some examples of what creates risk for lenders:

• LTV (Loan-to-Value) - Lenders will assess the LTV ratio to gauge risk – the higher the LTV, the riskier the loan is to lenders. This can affect your plans with bridge finance, inflating the costs overall through a higher interest rate. For this reason, you must carefully consider the calculations when thinking about your exit strategy.  

• The type of loan– Bridging loans have different terms and criteria depending on their type – regulated and unregulated. If you are purchasing a residential property for personal use, you would require a regulated loan. Regulated loans offer the best LTV (60 -70%) for residential buyers, and plenty of lenders can facilitate this.

• Property location – Where a property is located can influence the risk factor for lenders. For instance, it can be difficult finding a buyer if a property is remote or the potential pool of buyers is small. Ultimately, the property is your exit strategy when repaying the bridging loan – if lenders evaluate a potential difficulty in selling, then interest rates may be increased to compensate for this.

How is interest repaid on a bridging loan?

Interest on bridging loans is repaid based on the loan's terms and conditions. Borrowers have two options for repaying interest:

1. Monthly interest payments – similar to mortgage interest monthly payments with the borrower making payments on a monthly basis, at a set amount. The borrower would pay only the interest on the loan each month, without reducing the principal amount. At the end of the loan term, the borrower will repay the full principal amount in a lump sum.
2. Rolled-up interest – with this option, borrowers defer payment of interest until the end of the loan term. The interest owed is added to the principal amount and, at the end of the loan term, the borrower repays the total amount, with interest, in a lump sum.

It's important to note that there are no early repayment charges applied to bridge loans because of their short-term nature. If you have the ability to do so, you can repay interest or the total loan amount before the end of the loan term.

What are the additional fees?

An arrangement fee - typically 2% on the net or gross loan - is charged by lenders. The cost of a survey or valuation depends on the type of property being appraised. An alternative to lenders surveying a property is a drive-by or desktop evaluation, which is faster and cheaper overall. 

Legal representation is required, but there is no fixed rate for legal fees for these situations. However, although the fee can vary, this fee can be reduced when bridging lenders offer "dual representation" – we can aid in giving access to lenders that will accommodate more favourable fees. 

Lastly, some other fees to consider are loan-exit fees (although exit fees are applied only rarely) and broker fees. We typically charge a broker fee of £995 when arranging finance on your behalf. 

Are there ways to reduce the cost of bridging finance? 

Using multiple properties as security reduces the overall cost of the loan. If your property is secured by a mortgage, this will be reflected in the overall LTV (loan-to-value) calculation. However, there are some additional strategies you can use to potentially reduce costs: 

• Negotiate: You could negotiate the terms and interest rate with the lender. Make sure you understand the lender's requirements and see if there is any flexibility in the terms.
• Consider a shorter loan term: Bridging loans are typically short-term loans, usually between 6 and 12 months. If you can repay the loan quickly, you may be able to negotiate a lower interest rate.
• Shop around: Different lenders offer different interest rates and terms on bridging loans, so it's worth shopping around to find the best deal. Compare fees and interest rates from several lenders before deciding which one to use.
• Have a clear exit strategy: Bridging loans are meant to be short-term solutions, so having a clear plan to repay the loan on time is crucial. If you can show the lender that you have a plan, they may be more willing to negotiate the terms.

Keep in mind that it's important to seek out a reputable lender and fully understand the terms and conditions of the loan before signing on the dotted line. While reducing the cost of bridging finance is important, it should not compromise the quality of the loan and the lender's credibility.

Get a bespoke quote on bridging loans from our team

Bridging loans offer speed and flexibility when it comes to time-sensitive situations. With our experience in short-term financing, we can assist you in finding the right bridge loan for your circumstances. 

We have an extensive network of lenders we deal with regularly. With us, you can secure the best loan rates available from authorised and regulated lenders, or private lenders for unregulated transactions.

Do not hesitate to contact us, and inquire about our bridging loan services.