Bridging interest is quoted as a monthly rate, and there are three ways to settle it: roll it up, retain it, or service it monthly. The rate can be identical in all three cases and the total cost will not be — on a typical twelve-month facility the gap is usually thousands of pounds.
This guide explains what each option does to your gross loan, your loan to value and your total cost, and how to choose between them.
The short version
Rolled up. Interest is added to the balance each month and compounds. You pay nothing until redemption. The debt grows month by month.
Retained. The lender calculates the interest for the whole term and holds it back from the advance at the start. No monthly payments, but you borrow more to release the same cash.
Serviced. You pay the interest monthly and repay the capital at the end. The cheapest option, because nothing compounds and nothing extra is borrowed.
The same deal, three ways
Take a borrower who needs £300,000 in cash against a £500,000 property for twelve months, with a 2% lender arrangement fee, a 1.5% broker fee and a rate of 0.85% a month:
| | Rolled up | Retained | Monthly | |---|---|---|---| | Gross loan | £310,881 | £347,625 | £310,881 | | Interest | £33,235 | £35,458 | £31,710 | | Monthly payment | None | None | £2,642 | | Repaid at the end | £344,116 | £347,625 | £310,881 | | Gross LTV | 68.8% | 69.5% | 62.2% | | Total cost of borrowing | £46,016 | £49,525 | £44,491 |
Three observations.
The gross loan differs. Retained requires a larger facility — £347,625 against £310,881 — because the whole term's interest comes out of the advance before the cash reaches you.
The loan to value differs. Serviced is lowest at 62.2%, because the balance never grows. That can matter: a lower LTV can drop you into a cheaper rate band, which makes serviced interest cheaper still.
The total cost differs by £5,034 — around 11% — on a loan where the headline rate is identical.
You can reproduce these figures, and change the inputs, in our bridging loan calculator.
Rolled up, in detail
Interest is charged on the outstanding balance each month, added to it, and the following month's interest is charged on the new, larger balance. It compounds.
Advantages. No monthly payments, so no cash flow burden during the term. No affordability assessment on payments. The whole facility is available as working capital. Suits any project where the property produces no income — refurbishments, vacant commercial buildings, development sites.
Disadvantages. The debt grows, and because it grows, the redemption LTV is higher than the drawdown LTV. Most lenders measure a rolled-up facility against what will be owed at the end, so compounding can push the deal into a more expensive tier or reduce the cash available.
Choose it when the property generates no income and you want maximum flexibility. It is the default for most bridging cases for exactly that reason.
Retained, in detail
The lender works out the interest for the full term — usually as simple interest, not compounded — and holds it back from the advance. You receive the net figure. If you repay early, unused interest is generally refunded, though you should confirm that in the facility documents rather than assume it.
Advantages. No monthly payments and complete certainty: the redemption figure is fixed on day one and does not move. Some borrowers find that easier to plan around than a growing balance. Early repayment can return unused interest.
Disadvantages. The most expensive of the three in total cost terms, because you borrow more to release the same cash and pay fees on the larger gross loan. It also uses up more of your available loan to value, which can limit the cash you can raise.
There is a structural limit as well. Because the retained interest comes out of the advance, a long term at a high rate can leave very little net cash — our calculator flags the point at which retained interest stops being viable, and lenders will refuse it before that point.
Choose it when you want a fixed, known redemption figure and the extra cost is worth the certainty, or when a particular lender's product only offers retained.
Serviced, in detail
You pay the interest monthly, like an interest-only mortgage, and repay the capital in full at the end.
Advantages. The cheapest of the three. Nothing compounds. The balance stays flat, so the loan to value stays flat, which can secure a better rate band. And you can often raise more cash, because less of the facility is consumed by interest.
Disadvantages. You have to make the payments, from somewhere. The lender will test affordability — it is the only one of the three structures where they genuinely need to. And a missed payment on a bridging facility is a more serious matter than a missed direct debit on a mortgage.
Choose it when the property produces rental income during the term, or when you have reliable income from elsewhere. Landlords refinancing a tenanted property are the classic case.
Combinations
Some lenders offer part-serviced facilities: you service a portion of the interest monthly and roll up the rest. It splits the difference — cheaper than fully rolled up, with a smaller monthly commitment than fully serviced.
It is not universally available and it adds complexity, but it is worth asking about where the property produces some income but not enough to cover the full monthly interest.
The compounding effect over a longer term
Over twelve months the difference between simple and compound interest is modest. Over twenty-four it is not.
On a £310,881 gross loan at 0.85% a month:
| Term | Rolled up (compounding) | Serviced (simple) | Difference | |---|---|---|---| | 6 months | £16,196 | £15,855 | £341 | | 12 months | £33,235 | £31,710 | £1,525 | | 18 months | £51,162 | £47,565 | £3,597 | | 24 months | £70,023 | £63,420 | £6,604 |
The longer the facility, the more compounding costs you. On a two-year facility that difference is real money, and it is worth structuring around if there is any income available to service the debt.
How the choice affects how much you can borrow
This is the part that surprises people.
If a lender caps at 75% gross LTV on a £500,000 property, the maximum gross facility is £375,000. Under serviced interest, almost all of that is available as cash after fees — roughly £362,000.
Under rolled-up interest, the cap applies to the redemption figure, so the facility has to be sized so that the balance after twelve months of compounding stays within £375,000. That pulls the day-one gross loan down to around £339,000, and the cash released down with it.
Under retained, the interest comes out upfront, so the cash released is lower again.
Same property, same lender, same cap — materially different cash in hand. If you are stretching for the maximum, the interest structure is not a detail.
Questions worth asking
- Is unused interest refunded if I repay early under a retained facility?
- Is there a minimum interest period, and how long is it?
- On a serviced facility, what happens if a payment is missed?
- Can I switch structures during the term?
- Is part-servicing available?
- Which structure gives me the most cash at this loan to value?
How to decide
Work through it in this order.
Does the property produce income during the term? If yes, look seriously at serviced — it is the cheapest and it keeps your LTV down.
Do you need every pound of cash the facility can release? If yes, serviced usually wins again, for the reason above.
Do you need certainty about the redemption figure more than you need the lowest cost? Then retained has a genuine case.
Otherwise, rolled up is the standard answer, and for most refurbishment and development-exit cases it is the right one.
Run all three in the calculator with your own numbers — it shows them side by side, including every fee — and if you want the structure sense-checked against live lender criteria, send us the deal.
Figures in this guide are illustrative market assumptions used to demonstrate how each structure behaves. They are not Amram Finance's rates and are not an offer of finance.