Retained vs serviced interest: which is better?
Retained interest is added to the loan and repaid at exit — you make no monthly payments but pay more overall. Serviced interest means you pay monthly, reducing total cost but requiring regular cash flow. Choose based on whether you have income during the loan term.
Retained (rolled-up) interest
With retained interest, the full interest for the agreed term is deducted from your loan on day one or added to your redemption figure. You make no monthly payments during the term. This is the most common structure for bridging loans where the borrower has no income from the property during the works period.
Serviced interest
With serviced interest, you pay the monthly interest charge each month during the loan term, similar to a standard mortgage payment. Your redemption figure stays at the original loan amount rather than growing. This reduces total cost but requires monthly cash flow — either from rental income, business revenue, or personal resources.
Cost comparison
On a 300,000 bridging loan at 0.85% per month for 12 months: retained interest costs 30,600 (added to the loan); serviced interest costs the same 30,600 but paid monthly at 2,550. However, with retained interest you also pay interest on the interest amount — the compounding effect means retained typically costs 3% to 8% more over the full term.
Which to choose
Choose retained if: the property is vacant during works, you have no rental income, or you want maximum cash available for the project. Choose serviced if: the property generates income during the loan term, you want to minimise total cost, or you are bridge-to-let and have tenants in situ.
FREQUENTLY ASKED
Frequently asked questions
Most lenders set the interest basis at drawdown and do not allow switching mid-term. Some flexible lenders offer hybrid structures where you retain interest for an initial period then service once the property generates income.
Yes. Retained interest is included in the gross loan, which increases the effective LTV. If a lender caps at 75% LTV gross, the retained interest reduces your available net loan compared to a serviced interest structure.
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Results are indicative and depend on lender criteria, valuation, security, credit profile, exit route and full underwriting.
Results are indicative and depend on lender criteria, valuation, security, credit profile, exit route and full underwriting. Commercial finance may be unregulated. Some property finance can be regulated depending on borrower, property use and loan purpose.