Bridging loans are short-term loans that offer fast convenience and flexibility for property transactions. As such, they can have higher costs than other types of funding. Having the option to repay a bridging loan early would reduce the interest payable and save on these costs. This is why many borrowers ask: Can you pay off a bridging loan early?
Can you pay off a bridging loan early?
Yes, generally, lenders are willing to allow the early repayment of bridging loans without imposing a penalty fee. This can make a bridging loan even more appealing. As interest is usually calculated over the term of the loan, the ability to repay it early significantly reduces the amount of interest that’s payable overall. If you’ve already arranged long-term financing, such as a mortgage, which has a lower interest rate, you can refinance sooner and save on interest costs.
Repaying a bridging loan early also means that the asset you’ve used as security can be released. You can then use it as security for another loan if needed. And finally, once your bridging loan has been repaid, you no longer need to worry about the risk of something going wrong that results in missed or late payments, giving you peace of mind.
Considerations for repaying a bridging loan early
Just bear in mind that lenders vary in their terms on repayment. Whilst most are happy to accept early repayment without charging you a fee, some may impose one. Others may set a minimum interest period before you can repay the loan.
Interest calculation
Interest on bridging loans can be calculated daily or monthly. With daily interest calculations, you pay interest for each day that your loan is active. This means that you can save a significant amount if repaying your loan early and it makes a mid-month repayment possible.
With monthly interest, you’re likely to be charged the full month’s interest payment even if you repay your loan within the first few days of the month. Therefore, try to arrange your repayment so that it falls at the end of a month. That way, you won’t pay interest costs for a period that you no longer need the loan for.
Exit fee
Some lenders charge an exit fee when you repay your bridging loan, whether at the scheduled time or earlier. This is typically between 1% and 2% of the loan amount or equivalent to 1 month’s interest. Check the terms of your bridging loan offer carefully regarding this as an exit fee can be a significant cost.
Minimum interest
Another cost to be aware of is the minimum interest charged on the loan. Lenders set a minimum interest period, as detailed in the bridging loan offer, and this differs between lenders. Some only set the minimum period as the first full month. Others have a minimum interest period of between 3 and 6 months. Some set longer minimum periods.
Whatever the period, you need to be aware of this when thinking about repaying your bridging loan early. If you repay it before the minimum interest period has been reached, you will still have to pay the minimum amount of interest owed.
Speak with our expert bridging loan brokers
Get in touch with one of our experts if you’re considering a bridging loan. We can compare the loans offered by different bridging finance lenders to find the best match for your needs. Our bridging loan specialists can advise you on the types of bridging loans to choose from, check the flexibility of the terms and compare the costs.
For the possibility of early repayment, our brokers can check the terms and weigh up the differences between the savings in interest you’d stand to make against a potential exit fee and minimum interest charges. Give us a call on 01322 907 000 to arrange the best financial solution for your property transaction.