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.
Estimate the gross loan against property value before interest, fees and retained amounts.
For context, these are the wider product terms covered by this guide. Availability and eligibility depend on your circumstances and the lender.
| Criteria | Detail |
|---|---|
| Borrowers | Personal, limited company (Ltd co), LLP and offshore trusts, depending on the lender |
| Repayment type | Interest only or repayment |
| Term | Short term. The maximum term varies by lender; in our experience the minimum term is usually 1 month, and 3 months with some lenders |
| Experience | Not always required; it depends on the lender and the exit |
| Max applicants | Varies by lender |
| Valuation types | Automated valuation (AVM), Market Value 1 (MV1) yield based, market value (MV), 180-day or 90-day value, depending on the lender and how it labels the valuation basis |
| Regulated and unregulated | Yes, both: regulated where the borrower or a close family member lives, or will live, in the property |
| Credit searched | Usually, depending on the lender |
| Credit scored | Varies by lender; the decision rests mainly on the property and the exit |
For context, these are the wider product terms covered by this guide. Availability and eligibility depend on your circumstances and the lender.
| Loan to value | Rate |
|---|---|
| 65% LTV | 0.62% per month (2% lender fee) |
| 75% LTV | 0.72% per month (2% lender fee) |
| 85% LTV | 0.9% per month (2% lender fee) |
For context, these are the wider product terms covered by this guide. Availability and eligibility depend on your circumstances and the lender.
| Feature | Detail |
|---|---|
| Additional Security | 100%+ |
| Residential | 90% |
| Commercial | 75% |
| Land | 70% |
Serviced interest is paid monthly, like a mortgage, so it is not deducted from the loan. It maximises the net advance but requires income to meet the payments throughout the term.
Serviced payments involve making regular interest payments throughout the loan term. This helps manage cash flow by spreading out the interest costs over time.
There are typically two methods for repaying interest on a bridging loan:
Serviced Interest:
Deducted (Retained) Interest:
Choosing between these options depends on the borrower’s financial situation and strategy, making it essential to understand which aligns best with their needs.
Retained interest is interest for the whole term calculated at the start and deducted from the gross loan, so there are no monthly payments. It reduces the net advance, and any unused interest may be refunded on early repayment, depending on the lender.
Deducted interest involves rolling up the interest payments into the loan amount, which is then repaid in full at the end of the term. This preserves cash flow during the loan term but results in a larger lump sum repayment.
Speak to a Mortgage Lane adviser about your circumstances and the next steps.
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