Mortgage guide
How is interest charged on a development mezzanine loan?
In mezzanine development finance, it is common for lenders to add the product fee and the interest for the loan term to the total loan amount. This results in the capitalization of both the interest and product fee, meaning they are included in the total loan balance, rather than being paid on a periodic basis.
- Published
- 13 Apr 2026
- Last reviewed
- 8 Oct 2026
- Reading time
- 3 min
How is interest charged on a development mezzanine loan?
In mezzanine development finance, it is common for lenders to add the product fee and the interest for the loan term to the total loan amount. This results in the capitalization of both the interest and product fee, meaning they are included in the total loan balance, rather than being paid on a periodic basis.
How does the Loan to Gross Development Value (LTGDV) affect the interest payable?
In mezzanine development finance, as the LTGDV ratio increases, so does the interest payable balance. This happens because the interest is calculated on a larger loan amount, which grows in line with the increase in the Gross Development Value (GDV) of the development project.
Is there a typical maximum LTGDV ratio that lenders consider for mezzanine development finance?
Lenders in mezzanine development finance usually adopt a cautious stance regarding the LTGDV ratio. Most lenders prefer not to finance projects requiring an LTGDV ratio exceeding 80%, as this helps manage risk and ensures the loan amount remains proportionate to the value of the completed development.
How does adding the product fee and interest to the loan impact the total cost of the loan?
When the product fee and interest are added to the loan in mezzanine development finance, the initial loan amount increases. This means that over the loan term, the borrower ends up paying interest on a larger principal amount, which in turn increases the total cost of the loan.
Can developers pay the interest periodically instead of rolling it into the loan?
The option to pay interest periodically in mezzanine development finance varies based on the lender’s terms. While some lenders may offer this option, it is less common, with many preferring to capitalise the interest into the loan.
What should developers consider when evaluating the impact of interest payments on their project?
Developers should carefully consider the total cost of the loan, including capitalised interest, when planning their development projects. Assessing the project’s feasibility with the increased loan amount and ensuring that the final LTGDV ratio is within viable limits is essential.
Are there any strategies to mitigate the impact of interest payments in mezzanine development finance?
To mitigate the impact of interest payments in mezzanine development finance, developers can focus on efficient project planning to ensure timely completion, thereby reducing the total interest accrued. Additionally, exploring specific financing incentives or tailored options for development projects can lead to more favourable financing terms.
Development finance calculator
Mezzanine financing criteria
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, Ltd co, LLP, Trusts, Offshore Trusts |
| Term | Max 24 months |
| Max Applicants | 6 |
| Loan to Gross Development Value (LTGDV) | Max 75% |
| Loan to Cost (LTC) | Up to 95% |
Related case studies
Frequently asked questions
What is mezzanine development finance?
Mezzanine development finance is a second-charge loan sitting behind the senior lender that takes total funding above the senior ceiling, commonly to 95% or 100% of cost. Mezzanine carries a higher rate and often a profit share, and is used to reduce the developer's equity requirement.
What fees are charged on development finance?
Development finance fees usually include an arrangement fee on the facility, an exit fee on the loan or the gross development value, monitoring surveyor fees for each drawdown inspection, and the lender's valuation and legal fees. Some lenders also charge a non-utilisation fee on undrawn funds. Make the comparison on the total cost of funds across the full term rather than on the headline rate alone.
How is the interest on development finance calculated?
Interest on development finance is usually charged monthly and can be either rolled up (added to the loan amount) or serviced (paid monthly), lenders however prefer the facility to be rolled and therefore paid on redemption. The interest rate varies based on the lender and the project’s risk profile.
How does development finance work?
Development finance works in two stages: an initial advance towards the land or existing building, then staged drawdowns of build costs released against a monitoring surveyor's monthly certificates. Interest is rolled up or retained within the facility, and the loan is repaid when the completed units are sold or refinanced onto term mortgages.
Can I get 100% development finance?
100% development finance is available, for the right scheme, through a joint venture lender that provides the senior facility and the equity together, funding the whole scheme cost in exchange for a share of the profit. The developer's cash at risk can be nil, with the site or opportunity, the planning consent and the delivery forming the developer's contribution.
Talk it through with an adviser
Speak to a Mortgage Lane adviser about your circumstances and the next steps.
Let’s talk property finance
Contact us
Tell us about your plans and a Mortgage Lane adviser will get in touch.
- Call our team
- +44 333 231 8206
- Email us
- enquiries@mortgagelane.com
- +44 7487 829005
- Opening hours
- Monday to Saturday, 8.30am–5.30pm
Closed Sunday
Your enquiry goes to our team, who will get in touch to discuss your next steps.