To help you understand how bridging loans are calculated we have provided this example, with additional notes explaining how the interest, costs and fees are calculated.
In the example below, the borrower requires a loan amount of £100,000 over a term of 12 months. The value of the property being used as security is £425,000 with an outstanding mortgage of £80,000 ...
To see these numbers explained ...
click on rows (1-8) to see of how the figures are calculated in this example ...
The net loan required is the amount that the borrower needs to borrow, without the interest and fees. This represents the amount that the borrower receives.
The term required is the duration of time (in months) that the loan is required for. The maximum term for an FCA regulated loan is 12 months, while non-regulated loans can be obtained for up to 36 months.
It is important to note that if you are paying the loan off early (before the end of the 12 months in this example) you will only pay the interest due up until that point.
The value of security property is the value of the property being used for the bridging loan as security for the loan. The bridging loan lender will secure a 1st charge against the property, or a 2nd charge where there is a current outstanding mortgage.
Multiple properties can be used as security, for example if you are moving home, you can use the value of the purchasing property as well as your current property, which lowers the LTV and therefore lowers the interest rate.
The outstanding mortgage is any balance remaining on any existing mortgage. The sum of any outstanding mortgage plus the bridging loan value is used when calculating the loan-to-value for the borrowing.
The Interest rate is a monthly rate, and is mainly dictated by the loan-to-value. As a general rule (for 1st charges), the rates apply to the following LTV bandings.
The lender's facility fee is a fixed fee, charged by the lender.
Usually between 1-2% of the net loan value, in this example: £2,000 (£100,000 x 2%)
The gross loan is the total of the net loan amount, the lender's facility fee, and the interest for the full term.
In this example, £100,000 + £2,000 + £5,389 = £107,389. This however, could be less if you redeem the loan before the end of the loan period. In this example, to see what it would be at any given month in the term, refer to the interest table below.
The loan-to-value is the total outstanding borrowings as a percentage of the securty value.
In this example, £107,389 + £80,000 divided into £425,000, (the gross loan plus the mortgage as a percentage of the security value), which equates to 44.1%
The gross loan amount is calculated by a method similar to that of a traditional mortgage which compounds the interest with the formula: (net loan + facility fee) x (1+ interest rate) raised to the power of the term. Although calculation methods can vary slightly between lenders, this is generally the most common method of calculation used.
So in this example, (£100,000 + £2,000) x (1+0.43%) ^12 = £107,389
The gross loan amount shows the total interest due for the full term of the bridging loan, in this example this is 12 months. The interest is shown on a monthly basis in the table set out below, so that you can see how this accumulates month by month.
It is important to note that if you pay the loan off early you will only pay the interest due up until that point.
|Month||Opening balance||Interest rate||Interest amount||Closing balance|
To calculate your own costs you can use our bridging loan calculator ...Bridging loan calculator
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