Loan structure
Rolled-up Interest
Rolled-up interest accrues monthly on the outstanding balance and is added to the loan each month, compounding as it goes. No payments are made during the term.
Rolled-up is similar to retained interest in that no monthly payments are required, but the maths is different. On retained, the lender calculates the full interest upfront. On rolled-up, interest is added month by month, so the balance grows each month and next month's interest is calculated on the larger balance.
On a 12-month term the difference is small — about 1-2% lower total interest on rolled-up versus retained. On longer or larger loans the gap widens because of compounding.
Rolled-up is most commonly used on unregulated bridging cases, particularly for property investors who plan to exit early. Early exit on rolled-up interest is more efficient than retained because you only pay interest on the months actually used.