When you take out a bridging loan, one of the most important decisions you make — and one that many borrowers don't fully think through — is how the monthly interest will be handled. There are three methods: rolled, retained, and serviced. Each has a different impact on your day-one net advance, your monthly cash flow, and your total cost of borrowing. Choosing the right one for your situation can make a meaningful difference to the economics of your deal.
Interest is added to the loan balance each month. No monthly payments — everything repaid on exit. Balance grows throughout the term as interest compounds. Most common option. Best when you have no monthly income from the property.
The total interest for the agreed term is calculated upfront and deducted from the gross advance on day one. No monthly payments. Refund on early exit. Simple (not compound) interest. Best when you have a short, defined exit timeline.
Monthly interest paid from your own funds — like a mortgage. Loan balance stays constant. Lowest total cost. Requires monthly cash outflow. Best when the property generates rental income or you have other regular income.
With rolled interest, the lender calculates the monthly interest charge and adds it to the outstanding balance at the end of each month. You pay nothing during the term. On exit, you repay the original loan principal plus all accrued interest in one lump sum.
The critical point with rolled interest is that it compounds. In month 2, you're paying interest not just on the original loan but also on the month 1 interest that was added to the balance. Over a 12-month term this effect is modest — but over 18+ months it becomes increasingly significant.
| Month | Opening Balance | Interest Added (0.75%) | Closing Balance |
|---|---|---|---|
| 1 | £500,000 | £3,750 | £503,750 |
| 3 | ~£507,556 | ~£3,807 | ~£511,363 |
| 6 | ~£523,000 | ~£3,923 | ~£526,923 |
| 9 | ~£537,000 | ~£4,028 | ~£541,000 |
Total interest on rolled basis over 9 months: approximately £41,000.
With retained interest, the lender calculates the total interest for the full agreed term upfront — using simple interest on the original loan amount — and deducts it from the gross advance before releasing funds.
| Item | Amount |
|---|---|
| Gross loan amount | £500,000 |
| Retained interest (9 × 0.75% × £500,000) | £33,750 deducted upfront |
| Net advance received on day one | £466,250 |
| Amount repaid on exit (original loan only) | £500,000 |
| Total interest paid | £33,750 (simple — no compounding) |
Total interest on retained basis: £33,750 vs £41,000 on rolled — a saving of ~£7,250 over 9 months.
Early exit bonus: If you repay after 6 months instead of 9, the lender refunds the 3 unused months of retained interest (3 × £3,750 = £11,250). Your actual cost is only 6 months of interest — £22,500.
💡 The retained interest advantage: If you're confident of a short exit, retained interest is almost always cheaper than rolled — both because it's simple rather than compound, and because you get a refund for any unused months. The catch: your day-one net advance is lower, so you need more working capital upfront.
With serviced interest, you pay the monthly interest charge from your own funds each month — just like a mortgage payment. The loan balance never changes — it stays at the original £500,000 throughout. On exit, you repay only the original principal.
| Item | Amount |
|---|---|
| Monthly payment | £3,750 |
| 9 monthly payments | £33,750 total paid during term |
| Exit repayment | £500,000 (original principal only) |
| Total interest paid | £33,750 (identical to retained — both simple interest) |
Total cost is the same as retained interest — but instead of reduced day-one advance, you pay monthly. Full gross advance received on day one.
| Method | Day-One Net Advance | Monthly Payment | Total Interest | Best For |
|---|---|---|---|---|
| Rolled | £500,000 | None | ~£41,000 | No monthly income, no cash to spare |
| Retained | £466,250 | None | £33,750 (+ refund if early) | Short defined exit, early repayment likely |
| Serviced | £500,000 | £3,750 | £33,750 | Regular income available, want max advance |
Not all lenders offer all three methods. Most bridging lenders offer rolled as standard and retained as an option. Serviced interest is less common — it requires the lender to set up monthly payment collection and assess affordability. Some lenders offer a hybrid: retain 3 months upfront then roll the rest.
Your broker should discuss the available options for each lender and model the impact on your specific deal before application.
Tell us the loan size, expected term, and your cash flow situation — we'll model all three options and show you the real cost difference before you commit.
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