Property Loan True Cost: How Rate, Fees and Retention Combine Before a Single Penny Is Deployed

Borrowers who arrive from a bank-mortgage background carry one number in their head: the annual interest rate. A private property loan doesn't work that way. There are four pricing components, and their interaction determines what you actually pay, not just the headline rate.

The gap between the quoted monthly rate and the effective cost on deployed capital is not a hidden fee or a lender's trick. It is arithmetic. Once you understand the mechanics, you can price a property loan facility in a matter of minutes and compare lenders on the figure that actually matters.

Most borrowers miss this at the term sheet stage. They spot the rate, multiply by twelve, and conclude they know the cost. They don't. At least not all of it.

The Four Components That Determine Your Real Cost

Every short-term private property loan shares the same four line items. Getting fluent with all of them is what separates a borrower who prices a deal correctly from one who is caught out at settlement.

Monthly rate. The starting number, and the one everyone reads first. Private property loans are quoted monthly rather than annually, so a 1.0% monthly rate is 12.0% per annum. That is already roughly three to four times the rate on a conventional mortgage in either market. The spread exists for a reason: private lenders move faster, skip the income test, and lend against the asset and exit instead. Singapore's TDSR framework and UK affordability rules both gate mainstream lending on declared income; a private property loan bypasses that constraint entirely.

Arrangement fee. Charged as a percentage of the gross loan, usually 1% to 2%, and deducted at drawdown. It compensates the lender for origination, legal review, and valuation. Because it is taken before you receive funds, it reduces the net capital you actually deploy, which in turn raises your effective cost.

Exit fee. Some lenders charge 0.5% to 1.0% of the outstanding balance on full repayment; others waive it. Where it exists, it is a pure cost addition at the back end, easy to overlook when your attention is on the front-end rate. Always check this line in the term sheet before signing.

Interest retention. The component that most surprises first-time borrowers. Rather than collecting interest monthly, many private lenders retain one or two months of interest upfront at drawdown. Those funds never reach you: they are settled immediately against the interest ledger. The retained amount reduces your net deployed capital, which raises your effective cost on what you actually receive.

How the Four Components Stack: A Worked Example

The table below uses a $2,000,000 / £2,000,000 loan with round figures to show how the components interact. The currency and jurisdiction do not change the mechanics; the arithmetic is identical whether the asset is a Singapore GCB or a prime London townhouse.

The loan runs for six months. Interest at 1.0% per month on $2,000,000 totals $120,000. Add the arrangement fee ($30,000) and an exit fee of 1.0% ($20,000), and total financing cost comes to $170,000.

Now apply that cost to the capital actually deployed:

Effective annual cost = $170,000 ÷ $1,930,000 × (12 ÷ 6) = 17.6% p.a.

The quoted rate annualises to 12.0% p.a. The effective cost is 17.6%. That gap, nearly six percentage points, comes entirely from the three non-rate components. No individual item is unreasonable; together, they compound.

The retention period is the most sensitive variable. A lender that retains three months rather than two on the same facility raises the effective cost further even if the headline rate is identical. When comparing property loan facilities, use effective cost on deployed capital as your benchmark, not the monthly rate in isolation.

When the Premium Makes Sense, and When It Does Not

The gap between headline rate and effective cost does not make the loan bad value. It makes the loan correctly priced for what it delivers: speed, flexibility, and no income test. The premium is the cost of those attributes, and in the right situation, it is worth paying.

A private property loan makes sense when time is the constraint. UK auction purchases require completion within 28 days of the fall of the hammer; UK auction bridging loans are structured around exactly that deadline. In Singapore, a buyer who has signed an OTP but whose own sale has not yet completed faces equivalent pressure: a condominium bridging loan can fund the gap in two to three weeks. For either borrower, a bank simply cannot move fast enough. See how that played out in the Binjai Park GCB acquisition case study.

It also makes sense when income is the constraint. A founder whose wealth sits in company equity, a retiree living on investment returns, or a foreign national without local employment history may pass the asset and exit test. The same borrower can fail a bank's affordability screen entirely. The private lending model was built for this profile: we underwrite the collateral and the repayment plan, not the payslip.

It is the wrong tool when the exit is uncertain. The short tenor and above-market rate make a bridge costly to extend. If the sale you are counting on is conditional, or the refinance you plan has not yet been credit-approved, model the extension cost before committing. Lenders will usually extend, but not at a lower rate. Explore our full range of property loan products to understand which structure fits your situation and timeline. If you want to understand how lenders assess your exit before they fund, the piece on refinance exits and bridge-to-mortgage transitions walks through the lender's checklist in detail.