Bridge loan calculator

What this number means

The real annualised cost expresses everything you pay, interest and fees together, as a yearly percentage of what you borrowed. It is the figure that makes a bridge loan comparable to any other borrowing.

It is materially higher than the quoted rate, and the shorter the term the worse the gap. Fees are charged once regardless of how long you hold the loan, so spreading them over six months rather than twelve doubles their annualised weight. A borrower who repays early to save interest still pays the whole fee.

This page does not say whether a bridge loan is worth it. Buying before selling has real value: it avoids a chain, a rental, and moving twice. What it costs is above; what it is worth is yours to judge.

How this is calculated

• Monthly interest is the loan amount multiplied by the annual rate, divided by 12. Interest-only, so the balance does not fall.
• Total interest is that monthly figure across the term.
• The origination fee is the stated percentage of the loan amount, charged once.
• Real annualised cost is total cost divided by the loan amount, scaled to a full year: (total cost / amount) x (12 / months).

That last step is the one most quotes omit. It is the same principle behind the APR disclosure required on consumer mortgages by Regulation Z at 12 CFR 1026, which exists precisely so that fees and rate can be compared as one number. Many bridge loans are business-purpose or investor loans and fall outside that requirement, so the disclosure is often not provided.

What this does not account for

• Carrying costs on the unsold property. Mortgage, taxes, insurance and utilities continue, and are frequently larger than the bridge interest itself.
• A sale that takes longer than expected. The single biggest risk. Extensions cost another fee and the interest keeps running.
• Deferred interest structures, where nothing is paid monthly and everything is settled at payoff, which costs more in total.
• Prepayment penalties or minimum interest periods.
• A sale price below expectations, which can leave the bridge only partly repaid.
• Tax treatment, which differs between a personal move and an investment.

Questions

Why is the effective cost so much higher than the rate?

Because fees are charged once but the loan is short. An origination fee of 2 percent on a loan held six months costs the same as 4 percent a year. Add that to the interest rate and the real annualised cost is well above the headline figure. The shorter the bridge, the worse the distortion, which is the opposite of what most people assume.

How is a bridge loan usually structured?

Most are interest-only for a short term, six to twelve months being common, with the principal repaid in full when the old property sells. Some lenders defer the interest too and take everything at payoff. This page models interest-only monthly payments, which is the most common shape.

What happens if the old house does not sell in time?

That is the risk the arithmetic cannot show you. Extensions are usually available and usually cost another fee, and the interest keeps accruing at a rate that is well above a normal mortgage. Some borrowers end up carrying the bridge far longer than planned. Model a longer term here and see what it does before committing.

What else should I count?

You are also still paying the mortgage, taxes, insurance and utilities on the property you have not sold. Those carrying costs are frequently larger than the bridge loan interest and they are not in this calculation. Add them yourself before deciding whether the overlap is affordable.