Retained interest bridging loan or rolled-up interest: which suits your deal?

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What does retained interest mean on a bridging loan?

With retained interest, the lender calculates the interest for the agreed term (or a set number of months) at the outset and holds it back from the money it releases. You receive a smaller net advance, but nothing is due each month. At the end you repay the gross loan, which already includes the interest the lender retained.

Retained interest is popular on commercial bridging because many deals involve a building that is vacant, being refurbished or changing use, so there is no rent to meet monthly payments. The lender also likes it: the interest for the term is already covered, which reduces arrears risk while you work towards your exit strategy.

• Cash flow: no monthly payments during the term.
• Cost of borrowing: interest is normally charged on the gross loan, including the retained amount.
• Early repayment: many lenders refund unused retained interest after any minimum interest period, but terms vary, so read the offer carefully.

How is rolled up interest different?

With rolled up interest, nothing is deducted for interest at completion. Instead, each month the interest is added to the balance, and the whole amount is repaid when the loan redeems. Depending on the lender, interest is calculated either on the original loan only (simple) or on the loan plus interest already added (compounded monthly).

Rolled up interest gives you a larger net advance on day one, because no interest is held back. The trade off is that the debt grows each month. Lenders cap how far the balance can grow by applying a maximum gross loan to value, so the more months of interest you need, the less net cash can be released at the start.

One practical difference: with rolled up interest you only pay interest for the months the loan is actually outstanding, so repaying early automatically reduces your total cost, subject to any minimum term.

When does serviced interest make sense?

Serviced interest works like a conventional loan: you pay the interest each month, and the capital is repaid at the end of the term. It suits borrowers buying a let commercial property with rent coming in, or a trading business with reliable profits.

• You receive the largest net advance of the three methods, because nothing is retained or rolled.
• The balance does not grow, so your exit has to repay only the original loan.
• Lenders will want evidence you can afford the payments, such as leases, rent schedules or business accounts.
• Missing a payment can put the loan into default, so serviced interest carries more day-to-day risk than retained interest.

Some lenders offer a hybrid: part of the interest serviced and part retained or rolled up. This can help where rent covers some, but not all, of the monthly cost.

Retained vs rolled up vs serviced: a worked illustrative example

The figures below are illustrative only. They use round numbers and a hypothetical monthly rate of 1 per cent, chosen to make the arithmetic easy to follow. They are not a quote and do not reflect current pricing; see our rates page for how pricing is set.

For example, assume a gross loan of £500,000 for 12 months on a commercial property, with an arrangement fee of 2% (£10,000) deducted from the advance.

• Monthly interest: £500,000 x 1 per cent = £5,000.
• Interest for 12 months (simple): £5,000 x 12 = £60,000.
• Interest for 12 months (compounded monthly): £500,000 x 1.01 to the power of 12, less £500,000 = about £63,413.

Illustrative figures	Retained	Rolled up (simple)	Rolled up (compounded)	Serviced
Gross loan	£500,000	£500,000	£500,000	£500,000
Arrangement fee deducted	£10,000	£10,000	£10,000	£10,000
Interest deducted at start	£60,000	£0	£0	£0
Net cash released to you	£430,000	£490,000	£490,000	£490,000
Monthly payments	None	None	None	£5,000
Repaid at month 12	£500,000	£560,000	about £563,413	£500,000
Total interest	£60,000	£60,000	about £63,413	£60,000

Notice that the rolled up loan releases £60,000 more cash at the start, but the final balance is higher. In practice a lender would test that £560,000 (or £563,413) against its maximum gross LTV, which may mean a smaller loan is available. Valuation, legal and exit fees are left out here for clarity; our bridging loan fees guide covers them.

What happens to retained interest if you repay early?

This is the question that most often separates a good retained interest bridging loan from an expensive one. Continuing the illustrative example, suppose you redeem after 8 months instead of 12.

• Retained, with refund: 8 months used (£40,000), so the 4 unused months (£20,000) are credited back on redemption.
• Retained, no refund: you pay the full £60,000 regardless of when you repay.
• Rolled up (simple): 8 months accrue, so £40,000 of interest is added and repaid.
• Serviced: you have already paid 8 monthly payments of £5,000; nothing more is due beyond the capital.

Most lenders also apply a minimum interest period, often a few months, so a very quick repayment still pays that minimum. Ask for the refund terms in writing at the indicative terms stage, and check them again in the formal offer with your solicitor.

Which interest method suits which commercial deal?

Situation	Usually suits	Why
Vacant office or shop bought to relet	Retained or rolled up	No rent during the void period
Refurbishment or change of use	Retained or rolled up	Cash goes into works, not monthly payments
Let industrial unit with secure tenant	Serviced or hybrid	Rent covers payments, larger net advance
Trading business buying its premises	Serviced or retained	Depends on cash flow and how quickly a mortgage follows
Short, defined exit such as a contracted sale	Rolled up	You only pay for months actually used

On a refurbishment bridging loan, lenders often retain interest on the purchase element and roll up interest on works funding drawn in stages, because each tranche is drawn at a different time.

What can go wrong, and how do you protect yourself?

The biggest risk with any interest method is the exit taking longer than planned. Once retained interest is used up, the lender will expect payments or an extension, and default interest may apply after the term ends. With rolled up interest, a longer term means the balance keeps climbing, which can squeeze the equity you need for a refinance.

• Build a realistic timeline and retain or allow for a few months beyond your best case.
• Model the end balance against your exit, whether that is a sale or a commercial mortgage refinance.
• Run your own numbers in our bridging cost calculator before you commit.

We compare how each lender on our panel treats retained, rolled up and serviced interest, including refund rules and minimum terms, so you can see the real cost on a like-for-like basis.

Unregulated commercial and investment bridging is arranged directly. Any case where the security includes a home you or an immediate family member occupies, including a flat above commercial premises, may be regulated and is introduced to a firm directly authorised by the Financial Conduct Authority. We are not directly authorised by the Financial Conduct Authority ourselves. Your property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.