How to use the bridge loan cost calculator
- Enter the loan amount, the yearly interest rate and the number of months until the loan is paid off.
- Add the origination fee as a percent of the loan, any other fees paid up front, and an exit fee if there is one.
- Choose whether interest is paid each month or all at payoff.
- Read the total cost, the monthly interest, the cash you actually receive and the effective annual cost, then check the month-by-month cash table.
Formula
monthly interest = loan x yearly rate / 12
total cost = interest for all months + origination + other fees + exit fee
cash you receive = loan - origination fee - other fees
effective monthly rate = the rate i that makes cash received = sum of payments / (1 + i)^month
effective annual cost = (1 + i)^12 - 1
The effective rate is found by repeated halving until the payments, discounted at that monthly rate, equal the cash received. It is shown as 12 times the monthly rate (nominal) and as the compounded yearly rate (effective).
A $400,000 loan for nine months
A $400,000 bridge loan at 10.5 percent for nine months has monthly interest of $400,000 x 0.105 / 12 = $3,500, and $31,500 over the nine months. Fees are a 2 percent origination fee of $8,000 plus $3,500 of other costs, for $11,500. The total cost is $43,000, and you receive $400,000 - $11,500 = $388,500 up front.
The yearly cost is more than the 10.5 percent stated rate because the fees are paid on a loan that lasts only nine months. The monthly rate that matches the cash flows is about 1.214 percent, which is 14.57 percent nominal and 15.58 percent effective. If the interest is instead added up and paid with the principal at the end, the effective cost is 15.02 percent.
Why the effective cost is higher than the rate
Fees reduce the money you receive but not the amount you owe, and a short loan has little time to spread them out. Paying a 2 percent fee on a nine-month loan is like adding about 2.7 percentage points to the yearly rate before any other cost. The effective figure puts rate and fees on the same footing.
That makes it useful for comparing a bridge loan with a longer, cheaper one. The APR Calculator does the same job for ordinary loans, and the Origination Fee Calculator shows what a fee alone adds.
Interest each month or at payoff
With interest paid each month, the balance stays at the loan amount and each payment is the same. With interest paid at payoff, nothing is due until the end, and the final payment includes all the interest. The total interest is the same here because the page uses simple interest, but the effective annual cost is slightly lower when you pay later in this setup because less cash leaves earlier.
For a longer interest-only loan with a payoff at the end, see the Interest Only Loan Calculator and the Balloon Payment Calculator.
Assumptions and limits
- Interest is simple: one twelfth of the yearly rate each month on the full loan amount. Day counts and compounding are not modeled.
- Fees are taken from the proceeds on day one, except an exit fee, which is paid at payoff.
- The loan is repaid in full at the end of the last month you enter. Extensions and penalties are not modeled.
- Real lenders may charge other items, such as monthly servicing fees or minimum interest periods.
- Lender terms decide the real cost, and nothing typed here leaves your browser.
Frequently asked questions
What is the difference between nominal and effective annual cost?
The nominal figure is 12 times the monthly rate that fits the cash flows. The effective figure compounds that monthly rate for twelve months. The effective figure is higher and is the better one for comparing loans.
Why is my total cost not just the interest?
Fees count as cost too. The total cost adds the interest for every month to the origination fee, the other up-front fees and any exit fee.
Does this tell me whether I should take a bridge loan?
No. It shows the cost of the loan you describe. Whether the cost is worth it depends on what the loan lets you do and on what else is available to you.
Can the effective cost be lower than the stated rate?
Not with fees of zero or more, because paying fees can only add to the cost. With no fees and monthly interest, the effective cost is the stated rate compounded monthly, which is slightly above the stated rate.