When obtaining a bridging loan, there are several fees you may be asked to pay. The overall cost of the loan is determined by your credit history, duration of the loan, the value of your collateral, as well as the LTV of your property.
Here are some of the costs that you’ll need to cover as a borrower:
This is also known as a lender facility fee, and it’s a fee paid to the lender when the loan is disbursed. The arrangement fee is typically between 1 and 2 per cent of the amount borrowed.
Monthly Interest Costs
You will also be responsible for paying interest on top of the arrangement fee at rates of between 0.45 per cent to 1 per cent per month. Rates are usually determined by the degree of risk involved; higher risk equates to higher rates.
The interest can be recouped in three ways by the lender:
- Serviced interest – The borrower must pay interest on the loan every month.
- Retained interest – The total amount owed in terms of interest is determined and will be repaid at the end of the specified loan term once the borrower and lender agree on a rate and a loan term. However, if the borrower chooses to repay the loan sooner, the amount owed in interest is updated to take into account the new loan term.
- Rolled interest – When you refinance a mortgage, the interest generated is included in the loan. Rolled interest is only used when carrying out a property renovation, as the overall amount owed, including the interest, does not exceed the maximum LTV according to the end value after the job is completed.
You’ll be responsible for your own legal fees in addition to the lender’s.
This is the fee charged by the RICS surveyor to assess the value of the property to be used as collateral, and the amount you will pay can vary depending on the surveyor, the location, the valuation type, the asset’s value, and so on. A valuation generally costs between £500 and 1% of the value of the asset.
On completion of the loan repayment, some lenders charge an exit fee. This is typically 1 per cent to 2 per cent of the loan or one month’s interest.