What a Bridge Loan Actually Costs: Rates, Points, and Hidden Fees Explained

James Dalton

Managing Partner, MB4I

Bridge Loan Pricing Is Not Just the Rate

When investors ask about bridge loan pricing, the first question is almost always 'What's your rate?' It is a reasonable question, but it is the wrong starting point. The interest rate on a bridge loan is one component of total cost — and often not the largest one.

To understand the true cost of short-term capital, you need to account for origination points, interest reserves, extension fees, exit fees, and the time value of money over the loan's actual duration. A bridge loan at 10% with 1 point and no hidden fees can be cheaper than a bridge loan at 8% with 3 points, an interest reserve, and an exit fee — depending on how long you hold the loan.

This article breaks down every cost component so you can calculate the true cost of a bridge loan before you commit.

Interest Rate

The interest rate on a bridge loan is typically stated as an annual rate, but the loan is almost never held for a full year. Bridge loans are short-term instruments — usually 6 to 24 months — so the actual interest paid depends on the hold period.

For example, a $500,000 bridge loan at 10% interest-only costs $4,167/month. If you hold it for 7 months (a typical bridge-to-refinance timeline), your total interest cost is $29,169 — not $50,000.

Most bridge loans are interest-only, meaning you pay interest each month and repay the full principal at maturity (or earlier, when you refinance or sell). This keeps monthly payments low, which is the point — you are bridging a gap, not setting up permanent financing.

Origination Points

Points are upfront fees expressed as a percentage of the loan amount. One point = 1% of the loan amount. A $500,000 loan with 2 points costs $10,000 in origination fees, paid at closing.

Points are the second-largest cost component on most bridge loans after interest. They compensate the lender for origination, underwriting, and the short duration of the loan — since the lender only earns interest for 6-18 months, the upfront fee helps make the deal economically viable.

Typical bridge loan points range from 1 to 3 points. Lower points often mean a higher rate, and vice versa. When comparing loans, always calculate the combined cost of points + interest over your expected hold period, not just the rate.

Interest Reserves

Some bridge lenders require an interest reserve — a portion of the loan proceeds (or additional cash at closing) set aside to cover interest payments for a specified number of months. This ensures the lender gets paid even if the property does not generate income during the bridge period.

For example, a lender might require 6 months of interest to be reserved at closing. On a $500,000 loan at 10%, that is $25,000 held in reserve. This is not an additional cost — you are prepaying interest you would owe anyway — but it affects your cash flow at closing because that capital is locked up until it is applied to monthly payments.

Not all lenders require interest reserves. MB4I typically does not require them on investment property bridge loans where the borrower has sufficient liquidity, but they may be required on certain deal types or for borrowers with limited reserves.

Extension Fees

Bridge loans have a defined term — typically 12 months with an option to extend for 3-6 months. If you need more time (your refinance is delayed, the sale has not closed), you may need to exercise an extension option.

Extension fees are typically 0.25% to 0.50% of the loan amount per extension period. On a $500,000 loan, a 0.50% extension fee costs $2,500. Some lenders also increase the interest rate during the extension period.

The key is to understand the extension terms before you close. How many extension periods are available? What is the fee? Does the rate increase? Is the extension automatic or does it require lender approval? These details matter if your exit takes longer than expected.

Exit Fees

Some bridge loans carry an exit fee — a percentage of the loan amount paid when the loan is repaid. Exit fees are more common on certain private capital structures and less common on standard bridge loans, but you should always check.

An exit fee of 1% on a $500,000 loan adds $5,000 to your total cost. If you are comparing two loans and one has an exit fee, you must factor it into the total cost calculation.

Calculating Total Cost: A Real Example

Let's compare two bridge loan offers on a $500,000 loan with an expected 8-month hold period:

Offer A: 10% interest-only, 2 points, no extension fee, no exit fee. Interest for 8 months: $33,336. Points: $10,000. Total cost: $43,336.

Offer B: 8% interest-only, 3 points, 0.50% extension fee (not needed), 1% exit fee. Interest for 8 months: $26,664. Points: $15,000. Exit fee: $5,000. Total cost: $46,664.

Offer A has a higher rate but lower total cost because the points and exit fee on Offer B add up. The lower-rate loan is more expensive over an 8-month hold.

This is why comparing bridge loans by rate alone is misleading. Always calculate total cost over your expected hold period.

Hidden Costs to Watch For

Beyond the explicit fees, watch for these less-obvious costs:

• Draw inspection fees: On rehab bridge loans, each draw may require an inspection ($150-$300 per inspection). A 5-draw project adds $750-$1,500 in inspection costs.
• Title update fees: If the title policy needs to be updated during the loan term (for example, after a rehab draw), there may be additional title charges.
• Appraisal costs: Most bridge loans require a new appraisal ($500-$1,500 depending on property type and complexity). Some lenders pass this through at cost; others mark it up.
• Wire and processing fees: Some lenders charge $50-$100 per wire and processing fees of $500-$1,000.
• Prepayment penalties: Bridge loans typically do not have prepayment penalties — you can pay off early without a fee — but always confirm. If a prepayment penalty exists, it can negate the benefit of an early exit.

The Bottom Line

The true cost of a bridge loan is the sum of all fees and interest over your actual hold period. A lower rate does not always mean a lower cost. Ask for a complete fee breakdown — rate, points, extension terms, exit fees, inspection costs, and processing fees — and calculate the total for your expected timeline.

At MB4I, we provide a complete fee breakdown in our term sheet. No hidden fees, no surprises at the closing table. If you have a deal that needs bridge capital, submit an inquiry and we will give you the real numbers.