Mortgage guide
The advantages and drawbacks of paying bridging loan interest monthly.
01
With serviced interest, you receive the full loan amount and only pay interest on capital you actually use. Over the life of the loan, this usually results in a lower total interest cost compared to deducted interest.
02
Interest is paid monthly, so if you exit early, you stop paying interest immediately. This makes serviced interest more cost-efficient where exit timing is uncertain or likely to be earlier than planned.
03
Unlike deducted interest, there is no situation where interest is charged on money you never receive. This improves the true cost efficiency of the borrowing.
04
If a project overruns, interest increases linearly, not disproportionately. This makes serviced interest more forgiving where planning, legal or construction timelines are unpredictable.
05
For longer short-term loans (9-18 months), serviced interest often produces better overall economics, provided cash flow supports payments.
01
Serviced interest requires monthly payments, which can be problematic where the property produces no income during the loan term (for example, during refurbishment or development). Missed payments can trigger default interest or penalties.
02
Some lenders will assess the borrower’s ability to service interest, which can introduce additional underwriting checks. This may reduce lender choice for borrowers with irregular, seasonal or complex income.
03
Monthly servicing can strain working capital, particularly on projects where funds are needed for construction, professional fees or contingency costs.
04
Where the asset does not generate rent (e.g. vacant property, land, probate purchases), serviced interest may not be practical or may force the borrower to inject external cash.
Speak to a Mortgage Lane adviser about your circumstances and the next steps.
