Bridge loans let you move fast in competitive real estate markets, but the cost structure is nothing like a traditional mortgage. Understanding the actual fees and interest rates involved is critical before you commit—overpaying here can easily erase your profit margin on a fix-and-flip or delay your primary residence purchase.
How Bridge Loan Interest Rates Work
Bridge loan rates typically range from 8% to 15% annually, depending on your loan-to-value (LTV) ratio, credit profile, and lender. Unlike conventional mortgages locked in for 15 or 30 years, bridge loans are short-term (usually 6 to 12 months), so lenders price in higher risk and faster capital turnover.
Most hard money and bridge lenders quote rates as a combination of a base rate plus points. A 2-point origination fee means you're paying 2% of the loan amount upfront just to lock in that rate. If you're borrowing $300,000, that's $6,000 out of pocket before you even close.
The rate itself depends heavily on your exit strategy. If you're refinancing into a permanent loan or selling a property, lenders view you as lower risk and may offer rates closer to 8–10%. If your exit is less certain, expect to pay 12–15%.
Origination Fees & Points Explained
Points are pre-paid interest, calculated as a percentage of your loan amount. Here's what you're typically looking at:
- Origination points: 1–3 points (1–3% of loan amount)
- Processing fees: $500–$2,000 flat fee
- Underwriting fees: $500–$1,500
- Appraisal fees: $400–$800 (lender-ordered)
- Title search and insurance: $200–$600
On a $400,000 bridge loan at 2.5 points, you're paying $10,000 just in origination before closing. Add in processing, underwriting, and appraisal, and you could easily be $12,000–$15,000 in costs before funds hit your account.
Some lenders allow you to roll these fees into the loan balance, but that increases your total interest burden over the loan's life. Calculate both scenarios before deciding.
Prepayment Penalties & Exit Costs
This is where many borrowers get blindsided. Some hard money lenders charge prepayment penalties if you pay off the loan early, typically 1–3% of the remaining balance. If you close on a permanent refinance after 4 months instead of 12, you might owe thousands in penalties.
Always ask upfront:
- Is there a prepayment penalty, and if so, what percentage and for how long?
- Are there yield maintenance clauses that lock in lender profits regardless of when you repay?
- Can you refinance without penalty once your property reaches a certain LTV?
Accrued Interest & Holdback Costs
Bridge loans often accrue interest monthly, and you may not pay it until loan maturity or payoff. Some lenders charge "accrued interest" at closing—meaning interest is calculated from your draw date forward.
If your bridge loan runs 9 months at 10% annually on $350,000, you're looking at roughly $26,250 in accrued interest by the time you pay it back. That's not negotiable; it's part of the cost structure.
Some lenders also require a holdback—retaining 5–10% of loan funds until certain conditions are met (like a title insurance policy or final inspection). This reduces your immediate liquidity and should factor into your cash flow planning.
What to Compare Across Lenders
Before committing, request Loan Estimates from at least three bridge lenders. Compare:
- All-in cost: Points + fees + estimated interest for your expected loan term
- Rate flexibility: Do rates adjust based on LTV, credit score, or loan term?
- Exit strategy support: Will they refinance you smoothly, or charge penalties?
- Funding timeline: Some lenders fund in 5–7 days; others take 2–3 weeks
Mercoly helps you compare and find trusted hard money and bridge loan providers in one place, so you're not chasing quotes manually.
Frequently Asked Questions
Q: Can I negotiate bridge loan fees? Yes. Origination points and some processing fees are often negotiable, especially on larger loans ($500k+) or if you have strong credit and equity. Lender margins vary, so always ask what's fixed vs. flexible.
Q: What happens if I can't pay off my bridge loan on time? Most lenders allow extensions (typically 30–90 days) for a fee of 0.5–1% of the loan balance. After that, you risk default and potential foreclosure, so have a backup exit plan.
Q: Should I choose a lower rate or lower fees? Calculate total cost for your expected loan term. A slightly higher rate with zero points might cost less than a lower rate with 3 points if you're only borrowing for 6 months.
Compare quotes from multiple lenders today to lock in transparent pricing.