Capitalised Interest

Capitalised Interest means the interest on a loan is not paid during the loan term. Instead, it accrues and is added to the principal balance, so the borrower repays the full amount — original loan plus all accumulated interest — at maturity. This structure is standard in bridging finance, private lending, and development finance.

Why It Matters

Capitalised interest means no monthly repayments during the loan term. This is critical for borrowers who do not have cash flow to service a loan while building a property, bridging between transactions, or waiting for an exit event. However, it also means the total cost is higher because interest compounds on the growing balance.

How It Works

• Interest accrues monthly but is added to the loan balance instead of being paid.
• The loan balance grows over time (the original principal + accumulated interest).
• At maturity, the borrower repays the full balance — principal plus capitalised interest — in one payment.
• The repayment typically comes from the exit strategy: property sale, sell-down, or refinance.

Common Use Cases

• Bridging loans where the borrower has no income from the secured property
• Development finance where the project generates no cash flow until completion
• Private loans structured around a single exit payment
• Mezzanine facilities where interest is rolled up into the total facility

Related Switchboard Resources

• Private Lending
• Townhouse Development Finance
• Commercial Bridging Finance
• Exit Strategy
• Mezzanine Finance
• Facility