Serviced vs retained vs rolled up interest bridging loans.

At a glance

• Serviced interest is paid monthly throughout the bridging loan term.
• Retained interest is accounted for within the loan facility at the start, so you don’t make monthly interest payments during the retained period.
• Rolled-up interest builds up during the term and is repaid when the loan is redeemed.
• The interest structure can affect your monthly cash flow, the amount available at completion and the amount you need to repay at the end.
• With Together, Commercial Finance bridging can be available with serviced, retained or rolled interest, depending on the product and application.
• Together Personal Finance bridging is available with rolled-up interest.
• The bridging loan interest rate is an important figure, but you should also compare the term, fees, net advance and expected redemption balance.

When you’re arranging a bridging loan, it helps to understand not just how much interest is being charged, but how and when you’ll pay it.

That can make a real difference to the way your finance works. You may want to preserve cash for refurbishment costs, use rental or other income to make monthly interest payments or keep the amount due at the end of the loan within a planned refinance or sale.

The structure that works for you will depend on factors such as the cash you need at completion, the income available during the loan and how you plan to repay it.

If you’re unfamiliar with short-term property finance, our explanation of how bridging loans work covers how the loan, term and exit fit together.

How the three bridging loan interest options compare

Across the bridging market, interest can be structured in different ways. The key difference between serviced, retained and rolled-up interest is when the interest is paid or accounted for.

There’s no single interest structure that will be right for every bridging loan. What matters is how each option works with your plans.

Think about how much money you need on day one, whether you have enough income to make monthly payments and how you plan to repay the bridge.

What is serviced interest on a bridging loan?

With serviced interest, you pay the interest due on your bridging loan each month.

That gives you a regular monthly commitment throughout the term, so you need enough income or cash flow available to make those payments.

For a property investor, rental income may help support the monthly interest. For a trading business, and depending on the application and lender criteria, business income may be considered as part of the affordability assessment.

You also need to think about what those payments mean for the rest of your plans. Money used to pay interest each month won’t be available for refurbishment work, operating costs or other expenses connected with the property.

Serviced interest may therefore suit borrowers who can comfortably meet the monthly payments while keeping enough money available for the rest of their plans.

How does Together assess affordability for serviced Commercial Finance bridging?

For Together Commercial Finance applications where interest is being serviced monthly, we need to understand how you’ll afford those payments.

For properties producing rental income, our Commercial Finance bridging criteria use an Interest Cover Ratio (ICR). This measures how well the income generated by the property covers the interest payments.

Where a property doesn’t produce sufficient rental income to meet our ICR criteria, we can assess affordability using Total Secured Debt to Income (TSDI). This looks at secured debt payments against the customer’s net income or profit.

Our guide to business loan and mortgage affordability explains both calculations in more detail. Brokers assessing a case can also use our criteria and affordability calculators.

What is retained interest on a bridging loan?

With retained interest, the interest for an agreed period is accounted for within the loan facility from the outset instead of being paid by you each month during that period.

A retained interest bridging loan can therefore reduce the pressure on your monthly cash flow. But you also need to know how retaining the interest affects the amount of money available for your transaction.

That makes the difference between the gross loan and net advance important.

The gross figure reflects the wider loan facility, while your net advance is the amount that is actually released after applicable deductions. If you need a specific sum to complete an auction purchase, carry out refurbishment work or secure another property, it’s the net figure you need to focus on.

Retained interest can also form part of the calculation used to determine the overall loan-to-value (LTV). LTV compares the borrowing with the value of the property being used as security.

Check the full illustration for your loan so you understand both the gross facility and the amount you’ll receive.

What is rolled-up interest on a bridging loan?

With rolled-up interest, you don’t make monthly interest payments. Instead, the interest builds up during the term and is repaid alongside the original loan when you redeem the bridge.

This keeps more cash available to you while the loan is running. That can help if you’re refurbishing a vacant property, waiting for an asset to start producing rent or keeping funds available for other costs within a project.

However, the interest still needs to be repaid when the loan is redeemed, with each month extra adding to your total repayable amount. You may to reassess whether your planned exit will still cover the increased balance if it takes you longer than expected to repay and plan accordingly.

The way rolled-up interest is calculated can depend on the product. When comparing products from different lenders, check the loan illustration rather than assuming all rolled-up interest is calculated in the same way.

How to compare serviced, retained and rolled-up interest

A bridging loan interest rate tells you the rate at which interest is charged. The interest structure tells you how and when that cost affects your finances.

When you compare options, these are the questions that matter most.

How much cash do you need at completion?

Start with the amount you need to make the transaction work.

If you’re buying at auction, you may have a fixed amount to pay by a fixed completion date. If you’re carrying out refurbishment work, you may need funds available for contractors, materials and other costs.

If interest is retained, look closely at the net advance so you know how much money will actually be released to you.

Can the property or business support monthly interest payments?

Serviced interest creates a regular monthly payment.

If the property is already tenanted and generating rent, that income may help support those payments. If the property is vacant or still being refurbished, your position may be different.

You’ll need to be confident you can afford the payments for as long as the bridge is in place.

What will you need to repay when you exit?

Your redemption balance is the amount needed to repay the facility.

With serviced interest, you’ll have been paying interest during the term. With rolled-up interest, the interest that has built up forms part of the amount due when the bridge is redeemed. With retained interest, the interest is accounted for within the facility at the outset.

That means two bridging loans with the same or a similar interest rate can work quite differently in practice.

Compare the rate alongside the term, fees, net advance, monthly payments and projected redemption balance to build a clearer picture of the overall cost and cash flow.

How strong is your exit strategy?

Your exit strategy is your plan for repaying the bridge.

This could mean selling the property, refinancing onto longer-term borrowing or using another acceptable source of funds.

Our commercial bridging finance can support different types of property projects and exit strategies, subject to the application and our criteria.

It’s worth taking time to think about what happens if your plans take longer than expected. A delayed refurbishment, sale or refinance can change the length of time the bridge is needed and the amount of interest payable and could take you beyond the agreed bridging term.

Before taking out a bridging loan, consider what you’d do if your planned sale or refinance doesn’t happen in time to make your final payment. Having an alternative exit strategy can help reduce the risk of financial pressure if your circumstances change.

Rental income, gross rental yield, net rental yield and ICR

If rental income forms part of your plans, you may also come across gross rental yield, net rental yield and ICR. They measure different things.

Gross rental yield compares the annual rental income generated by a property with its value or purchase price before property-related costs are taken into account.

Net rental yield goes further by considering property costs when assessing the return being generated.

ICR, or Interest Cover Ratio, isn’t a measure of investment return. It looks at whether the property income provides sufficient cover for the interest payments on the borrowing.

For Together Commercial Finance applications where ICR applies, our calculation compares gross rental income with interest payments:

ICR = (Gross rental income ÷ Interest payments) × 100

So a strong gross rental yield or net rental yield doesn’t automatically mean serviced bridging interest will meet the lender’s affordability requirements. The affordability assessment looks specifically at whether the available income is sufficient to meet the required payments.

Which interest options does Together offer on bridging loans?

The interest options available with Together depend on whether you’re looking for Commercial Finance or Personal Finance bridging.

Commercial Finance bridging, interest can be serviced monthly, retained within the facility or rolled, depending on the product and application.

Our Personal Finance bridging is available with rolled-up interest only.

If you’re considering commercial bridging finance, we can look at the interest structure alongside the property, your cash flow and how you plan to repay the loan.

If you’re a broker assessing a commercial case, our information on unregulated commercial bridging finance explains the types of customers, properties and exit strategies we can consider.

All lending is subject to application, status and our criteria.

Choosing an interest structure that fits your plans

Serviced interest, retained interest and rolled-up interest each handle the cost of a bridging loan differently.

The right place to start is with your plans. Work out how much money you need at completion, what income will be available while the bridge is in place and how much your exit will need to repay.

Those figures will give you a clearer basis for comparing the options than the interest rate on its own.

If you’re considering commercial bridging finance, our team can take the time to understand what you’re trying to achieve and talk through the options available for your plans.