Retained Interest in Bridging Finance
Retained interest means the total interest for the loan term is calculated upfront and deducted from the gross loan advance, meaning you make zero monthly payments.
Bridging finance is a short-term funding solution used for auctions, refurbishments, and quick acquisitions. One of the primary benefits of bridging finance is how the interest payments are structured to aid cash flow.
With a retained interest facility, the lender calculates the total interest due over the entire term of the loan and deducts it upfront from the gross loan amount. This means the borrower does not need to make any monthly interest payments during the life of the loan.
Why use it?
This is highly advantageous for property developers who are undertaking heavy refurbishments or ground-up builds. During the construction phase, the property is not generating rental income, so servicing a monthly debt would drain cash reserves needed for the build. The retained interest is simply settled at the end of the term when the property is sold or refinanced.