What Capitalised Interest Actually Costs on a Bridging Loan
Property Lending Hub
Bridging Loan · Capitalised Interest · Loan To Value Ratio
Everyone tells you bridging interest is capitalised. Nobody shows you the arithmetic. Here is what a day costs, what 6 months does to the balance, and what that does to the percentage the lender measures you against.
Quick Answer
On the Australian non-bank bridging products reviewed, interest is usually not charged to you monthly. It is set aside inside the approved amount at settlement, or added to the balance as capitalised interest. That changes your payout figure, and it lifts the percentage your lender measures you against.
Part of the guide to bridging rates, fees and the term sheet, alongside bridging finance guide.
Also called: interest capitalisation, capitalized interest.
How much does a bridging loan cost per day?
A bridging loan costs, per day, the balance you are carrying multiplied by the annual rate and divided by 365. That is the whole formula, and it is why two borrowers on the same rate quote wildly different daily numbers to each other: the rate is rarely what separates them, the balance is.
Across the Australian non-bank bridging products reviewed for this page, published variable rates sat in a band of approximately 6.90 to 9.24 per cent a year as at 14 September 2026, each on its own basis and its own effective date. Run that band across three balances and the daily figure stops being a rumour.
| Balance you are carrying | Approximate interest per day | Approximate interest per month |
|---|---|---|
| $500,000 | About $95 to $127 | About $2,875 to $3,850 |
| $750,000 | About $142 to $190 | About $4,313 to $5,775 |
| $1,000,000 | About $189 to $253 | About $5,750 to $7,700 |
The figures borrowers quote each other, roughly $600 a day or roughly $10,000 a month, are answers to a different question. At the same band, $600 a day implies a balance of approximately $2.4 million to $3.2 million, and $10,000 a month implies approximately $1.3 million to $1.7 million. If your balance is nothing like that, neither is your daily cost. Before you compare any of this with a normal home loan, check whether the number you have been given is a headline rate or a comparison rate, because on a loan this short the two diverge sharply.
Is the interest added to your balance, or set aside at the start?
On the non-bank bridging products reviewed, the interest is generally set aside inside the approved amount at settlement rather than charged to your balance month by month. That is the opposite of the model most explainers describe, and the difference is not cosmetic: one is a fixed sum built into the facility on day one, the other is a balance that grows every month it runs.
The model the explainers describe is real, but it is the bank model. A major bank's own bridging page states that you make interest only payments while the loan runs, and that interest is calculated daily and charged monthly. Read that sentence next to the non-bank product pages and the market splits in two, which is capitalised interest doing very different work in each lane. Where this commonly lands is a borrower comparing a bank structure against a non-bank quote and assuming the cost line means the same thing in both.
| Lender class | What you repay during the bridge | How the interest is held | Where it lands at payout |
|---|---|---|---|
| Non-bank lender A | Nothing while the bridging loan runs | Future interest set aside inside the approved loan amount as an interest budget, for a period set to suit the applicant | Repaid from the sale proceeds, with the residual reverting to principal and interest over a long term |
| Non-bank lender B | No monthly repayments | Interest calculated in advance and included in the loan amount | Recalculated on the actual term, so a shorter bridge is recalculated down |
| Non-bank lender C | Interest only, or nothing where the interest is capitalised | Capitalised, meaning added to the loan amount owed at the end | Added to the balance repaid when the property sells |
| Non-bank lender D | Not published | Not published | Not published |
| Bank product, shown as a foil | Interest only payments required while the loan runs | Charged to you, calculated daily and charged monthly | Nothing is held back, because you have been paying it |
It is worth knowing where the official position stops. The national consumer regulator's own glossary defines bridging finance as short-term finance covering "the period between buying a new property and selling your existing property", on a MoneySmart glossary page dated 1 October 2019, and publishes nothing at all about how the interest is handled or what it costs. That single sentence is the entire government-published record on this product, which is a fair explanation of why most borrowers get their arithmetic from lender marketing.
Read from the lenders' own product and rates pages between 12 and 14 September 2026, with one of the four publishing no repayment or interest mechanics at all. Rate and policy pages on this lane change without notice, so treat every row as current only at that date. If you want the definitions of the balance at its peak and the debt you are left with afterwards, the bridging, caveat and second mortgage comparison carries them.
How much does the balance grow over 6 months?
A capitalised balance grows by roughly half the annual rate over 6 months and by slightly more than the annual rate over twelve, because each month's interest joins the balance the next month's interest is calculated on. The table below works one lane, a balance of $750,000 carried from settlement on the new property, chosen because it sits inside the loan sizes these non-bank products actually publish and because it is not the figure used on our cost pages elsewhere.
| Starting balance | Rate band | Interest at 6 months | Interest at 12 months | Balance at 12 months |
|---|---|---|---|---|
| $750,000 carried from settlement | Approximately 6.90 per cent a year, the low end of the published band | About $26,250 | About $53,418 | About $803,418 |
| $750,000 carried from settlement | Approximately 9.24 per cent a year, the high end of the published band | About $35,324 | About $72,312 | About $822,312 |
Every figure above is computed at the stated band ends on a monthly capitalising basis, indicative only, and rounded. Now the part the panels skip. On an interest budget structure, where the 12 months of interest is fixed inside the approved amount at settlement, the same period costs approximately $51,750 at the low end and approximately $69,300 at the high end. So compounding adds roughly $1,700 to $3,000 over a full year on this balance. That is real money and it is worth knowing, but it is not the runaway balance the word tends to suggest. The equivalent arithmetic on a construction facility, where the drawdowns move, sits on our capitalised interest and loan to cost page.
What does that growth do to your loan to value ratio?
Capitalised interest moves your loan to value ratio upward every month even when nothing happens to the property, because the numerator grows while the denominator sits still. This is the step most pages stop short of, and it is the one that decides whether a facility can be extended.
Take the same $750,000 balance against combined security of approximately $1,000,000. You start at approximately 75 per cent. At 6 months you are at approximately 77.6 per cent at the low end of the band and approximately 78.5 per cent at the high end.
When does a bridging loan cross the 80 per cent line on interest alone?
A facility written at approximately 75 per cent of combined security crosses the 80 per cent line somewhere between roughly the eighth and the eleventh month on interest alone, with nothing happening to the property at all. On the same $750,000 balance against approximately $1,000,000 of combined security, 12 months of capitalised interest puts you at approximately 80.3 per cent at the low end of the published band and approximately 82.2 per cent at the high end.
That matters because the ceiling is usually where the lender's own policy sits, and because an extension is assessed against the balance as it will be, not as it was. On the files we place, what decides it is whether anyone modelled the ratio at the end of the term rather than at the start. If you want to sanity check your own position against the security you are offering, the property and development finance hub sets out how these facilities are sized, and the comparison of bridging, caveat and second mortgage structures explains what each instrument does to the same security. Where the money is funded outside the banks, the pricing and security conventions sit on our private lending page.
What changes if the bridge runs to 12 months?
At 12 months the arithmetic stops being the main event and the structure takes over, because most of these facilities are written as a short-term loan with a defined end date rather than a term you can simply keep paying.
Same $750,000 balance, same approximately $1,000,000 of combined security, nothing else changes:
- The balance has grown by approximately $53,000 to $72,000 depending on where in the band your rate sits.
- Your ratio has moved from approximately 75 per cent to somewhere around 80 to 82 per cent, which is at or past where most of these lenders cap.
- An extension is now assessed on the higher balance, so the request is larger than the one originally approved.
- On the products that set the interest aside for a fixed period, that period has run out, so the next months are priced again rather than assumed.
- If the property still has not sold, the exit the facility was written against no longer matches the file, and that, not the interest, is what usually ends the conversation.
None of that is a prediction about your file. It is the sequence the numbers above force, and it is why the 12 month column matters more than the 6 month one.
How do you check the interest figure on your own offer?
You check it by making the lender's own document produce the number, rather than working backwards from a rate. Six questions settle it, and they are all answerable from paperwork you already have.
- Ask whether the interest is charged to you monthly or set aside inside the approved amount at settlement. These are different products and the answer changes everything below.
- If it is set aside, ask what the set aside amount is in dollars, and for how many months it has been calculated.
- Ask what happens to any unused portion if the property sells earlier than the term assumed, and get the answer in writing.
- Ask for the balance the lender expects at the end of the term, not the balance at settlement.
- Divide that ending balance by the value of the security the lender is holding, and compare the result with the maximum percentage the lender told you it lends to.
- Ask for the comparison rate and the full fee schedule, then check whether the fees are inside the set aside amount or on top of it.
If the answers do not reconcile, that is the conversation to have before you sign rather than at month nine. You can check your eligibility with us and we will run the same six questions across whatever you have been offered.
Capitalised interest on a bridging loan is not one mechanism, it is two, and the market is split between them. On the non-bank products reviewed here the interest is largely set aside inside the approved amount at settlement, which is a fixed sum rather than a balance that snowballs, while the bank model that most explainers describe charges it to you monthly. Once you know which one you have, the arithmetic is ordinary: a daily cost you can calculate yourself, a 12 month balance you can print, and a ratio that drifts upward the whole time. The national regulator's only published line on this product is a one sentence definition dated 1 October 2019, which is a fair measure of how much of the rest you have been getting from marketing.
Key takeaway: ask what your ending balance will be and divide it by the value of the security, because that ratio, not the rate, is what decides whether your facility can be extended.Frequently asked questions
Capitalised interest is calculated exactly like any other interest and then added to what you owe instead of being collected from you: the lender applies the annual rate to the outstanding balance for the days it is outstanding, and the result joins the balance. On a bridging loan the twist is where it sits, because several Australian non-bank products set the expected interest aside inside the approved amount at settlement rather than charging it monthly. Our capitalised interest glossary entry covers the mechanism, and the tables above work the arithmetic.
A bridging loan costs, per day, the balance you are carrying multiplied by the annual rate and divided by 365, so the balance matters far more than most comparisons admit. At the published non-bank band as at 14 September 2026, that is approximately $95 to $127 a day on $500,000 and approximately $189 to $253 a day on $1,000,000. Because these facilities are written as a short-term loan, the daily figure is the honest unit to compare them on.
Capitalised interest and compound interest describe two different things that often travel together: capitalising means the interest is added to the balance instead of being paid, and compounding means the next interest calculation runs on that larger balance. Interest can be capitalised without compounding, which is what happens when a lender fixes a set amount of interest inside the approved loan at settlement. On the balance worked above the difference between the two treatments is roughly $1,700 to $3,000 over 12 months, and our capitalised interest entry sets out the mechanism itself.
Capitalised interest affects how much you can borrow because the lender sizes the facility on the balance at its highest point, not on the balance at settlement, and every month of unpaid interest lifts that high point. A facility written at approximately 75 per cent of combined security crosses 80 per cent somewhere between roughly the eighth and eleventh month on interest alone. The bridging, caveat and second mortgage comparison sets out how each of those structures measures the same security.
On a 6 month bridging loan you pay roughly half a year of interest on whatever balance you carry, which at the published non-bank band is approximately $26,250 to $35,324 on a $750,000 balance as at 14 September 2026. Whether you feel that as a payment or as a larger payout figure depends on which of the two structures above your lender uses. The same calculation on a construction facility behaves differently, and that sits on our capitalised interest and loan to cost page.
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