Bridge Loan Cost Calculator

Understanding the bridge loan cost calculator — concept and principle

A bridge loan is short-term borrowing that covers a gap, most often buying a new home or property before the sale of the old one completes. It is usually secured on property, lasts months rather than years and costs more than a normal mortgage. This calculator adds up interest, the arrangement fee and other fees, and expresses the total as an all-in yearly rate.

How it is calculated

With loan amount P, annual rate r and t months:

• Rolled-up interest (added to the loan and paid at the end, compounding monthly) = P × ((1 + r/12)ᵗ − 1)
• Serviced interest (paid each month) = P × r ÷ 12 × t
• Arrangement fee = P × fee %
• Total cost = interest + arrangement fee + other fees
• All-in yearly cost ≈ total cost ÷ P ÷ (t ÷ 12)
• Repay at the end = P + rolled-up interest (or just P if interest was serviced)

The principle

With rolled-up interest you pay nothing monthly, but each month's interest is added to the balance and itself earns interest, so the total is a little higher than serviced interest. Fees are charged once, whatever the term, so on a short loan they weigh heavily: a 1.5% fee on a six-month loan adds roughly 3% a year to the cost. The all-in figure is a simple annualisation, which makes it easy to compare a bridge with other options such as a home equity loan or delaying the purchase.

Worked example

1. Loan $150,000 at 9% for 6 months, arrangement fee 1.5%, other fees $1,500, interest rolled up.
2. Interest = 150,000 × (1.0075⁶ − 1) ≈ $6,877.84 (serviced interest would be $6,750).
3. Arrangement fee = 150,000 × 1.5% = $2,250.
4. Total cost = 6,877.84 + 2,250 + 1,500 = $10,627.84.
5. All-in ≈ 10,627.84 ÷ 150,000 ÷ 0.5 ≈ 14.2% a year; amount to repay at the end = $156,877.84.

How to read the result

The all-in rate is usually well above the headline rate, especially for short terms. The biggest risk is time: if the sale takes longer, interest keeps growing and the loan may move to a higher default rate. Re-run the calculator with a longer term, such as 9 or 12 months, to see a realistic downside. Also check any exit fee, which is not included unless you add it to other fees.

Common mistakes

• Comparing only the interest rate and forgetting the fees.
• Planning on the best-case sale date.
• Overlooking that rolled-up interest reduces the equity left from your sale.

Frequently asked questions

Why is the all-in rate higher than the interest rate?

One-off fees are spread over a short period, which pushes the yearly equivalent up.

Rolled-up or serviced interest: which is cheaper?

Serviced is slightly cheaper in total because interest does not compound, but it needs monthly cash.

What are alternatives to a bridge loan?

Agreeing a later completion date, a home equity line of credit or selling before buying can avoid the cost altogether.

Sources: Standard time value of money mathematics (compound and simple interest)