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[vc_row][vc_column][vc_column_text]We all know that getting the best interest rate on your Bridging Loan can make the world of difference, but really understanding all of the interest repayment options available could massively help you minimise your monthly outgoings. 

So without further delay, let’s take a deep dive into what you really need to know…

The two types of interest repayment that most people have heard of are Interest-Only and Repayment. Just like it says on the tin, Interest Only (also known as Serviced Interest) is where you will pay the interest rate each month and only repay the loan in full at the end of the agreed term. Simple enough. 

With Repayment, you will pay both the interest rate and a portion of the loan throughout the agreed term. But as you can imagine, with the short term nature of a Bridging Loan, this option is generally not favoured by investors and is more geared towards Residential purchases. 

While both of these options have their own merits, there are other ways to repay your loan that you should definitely consider, especially when it comes to Bridging Finance.

Rolled-up is another form of Interest repayment that you could agree with the lender. This would essentially mean that you wouldn’t have to pay any monthly interest payments and the interest is paid as a lump sum at the end of the term. 

Let’s see that in action

To keep things simple, let’s imagine that you are looking to borrow £250,000 net, over 12 months and the rate is 0.5% per month. Ignoring any facility fees or other charges. 

This would make the monthly charge is £1,250

£1,250 x 12 months = £15,000

With a Rolled Up basis, there is no interest charged on the interest so you would get the £250,000 you need and would only pay the additional interest of £15,000 at the end of the term. 

Here’s why you should consider it…

Bridging Loans with Rolled-Up interest are becoming increasingly popular with investors who have no regular cashflow or rental income to offset the monthly cost and who know that both the interest and the loan can be paid back at the end of the term or once the property is sold. 

Not only does Rolled Up Interest mean that you don’t have the pressure of meeting the monthly charges but it also means that the underwriting is typically easier and quicker. 

If you are buying, refurbishing and refinancing a property on a very tight deadline, this could be very appealing and if the project is completed ahead of schedule, there would be less interest to pay. 

Why you might not…

Rolled-up interest can be hugely beneficial but it’s crucial to have a sound exit strategy in place to ensure you avoid any unnecessary fees or charges if the property sale is delayed. 

Also as the interest is compounded, the interest that you pay may be slightly higher than if you had repaid throughout the term. 

As experts in getting you the best overall deal, our advisors will look at all of the repayment options available to you as even with the slightly higher interest amount, this could be the most cost-effective and stress-free deal for your particular project. 

But that’s not all

Step forward Retained Interest – the happy middle ground of repayment options. 

Another very popular choice for Bridging Finance, loans on a Retained Interest basis work much in the same way as with Rolled Up with the Interest calculated at the outset but only payable at the end of the agreed term. As the interest is essentially ‘retained’ each month by the borrower, the overall sum of capital and interest is incorporated into the overall loan facility. 

The main difference here is that the interest rate is charged on the entire gross loan facility so, in effect, you would be paying interest on the interest

With both options, the gross loan amount will need to meet the lender’s maximum loan to value (LTV), which may mean that additional securities are needed in order to secure the higher loan facility. 

Which type of Interest Repayment is best? Serviced, Rolled Up or Retained?

The answer to this question will massively depend on your unique needs and it’s worth knowing that some Bridging lenders will allow you to take a combination of options. For example, you could benefit from Rolled Up interest for the first nine months and then switch to Serviced interest for the last few months of your term.

With so many options available to you the easiest way to find out which option will be most cost-effective is by calling one of our expert advisors today. We will handle all of the boring calculations and comparisons to pinpoint the best deal for you. Best yet, all of our quotes are 100% free with no obligation, so there really is zero risk in finding out just how much you can save and what is best for you.

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