How Much Does a Bridging Loan Cost?

We prepared this guide on the cost and fees associated with bridging loans so you can find how much bridging loan costs and how to get the ideal one.

A bridging loan is a short-term financing option. It can cost less than you think especially if you are using one for the right reason in the right way. A bridging loan can secure your property purchase cost-effectively because it can save you money and is quick to put in place. 

Bridging loan costs are made up of several fees. We try to make procedures less complicated for our clients. There is a general misconception that short-term financing options are extremely expensive. No responsible broker will persuade you to secure a borrowing that you cannot afford. 

Why does one take a bridging loan?

We have many clients for whom bridging finance works as a game changer. For clients who are downsizing and have a particular amount of equity on a home they are selling and have found their dream property that they can’t take a chance to miss out on – they choose bridging finance to bridge the gap. 

If you are planning to borrow a large amount of money quickly, perhaps to purchase an auction property, or want to sell a new house, bridging finance can be the right solution in this type of situation. 

How Much Bridging Loan Cost?

The biggest factor affecting the cost involved with this type of loan will be the interest rate and the term, and these costs can vary depending on whether you need it for commercial buying purposes or your house purchase. The bridging loan term can be as short as 3 to 6 months, although it is possible to borrow a bridging loan for as long as two years. The longer you borrow the loan, the more you will pay overall. 

However, there are other charges related to bridging loans. Your financial solution and the structure of your bridging loan may also affect these costs. That’s why it is important to speak to a professional financial broker who has expertise in bridging finance to help you guide throughout the process. 

Product Fees

If you are securing a large amount, the lender may charge a lower product fee, or waive the charges altogether. 

Broker Fees

While you could approach lenders directly, it is more beneficial to work with a professional broker who can help you find the right solution. They will negotiate on your behalf and deal with the complex procedures. The broker’s fee may be a percentage of the amount you intend to borrow, which can range from 0.5% to 2%, or it could be a flat fee.

Deposit

You will need to put down some money as a deposit on your property. The bigger you deposit the lower the interest you will charge. Most of the time, the expected amount to put in a deposit is approx 25% of the property value. It is possible to get a bridging loan for 100% of the property’s value, but usually, a second property that the borrower owner already has is used as a security deposit for the loan. 

Exit Fees

Bridging finance is highly flexible; you can also pay them early without paying a penalty; some lenders charge an exit fee of 1% of the borrowed loan when it is repaid. 

Drawdown Fees

As well as the product fee, lenders will charge a drawdown fee or admin fee to access your loan. This fee will vary from lender to lender, but you can expect to pay around £500.

Interest Rate

Interest rates on bridging loans range from 0.4% to 1.5%. Note that these are monthly rates, not annual. A bridging loan charging 1% interest per month will cost 12% over a year.

All in all, it is best to speak to a broker experienced in arranging bridging loans to help you find the best, cheapest deal for your situation.