Rolled-up interest refers to a method where no periodic interest payments are made during the loan term. Instead, the interest accrues and is paid as a lump sum at the end, usually upon exit or refinance. This structure is often found in property development finance UK, particularly within mezzanine debt or bridging loans. It benefits developers by preserving operating capital during construction, though it results in a higher total repayment due to compounded interest. Rolled-up interest is typically used in short- to medium-term development loans.
In structuring terms, rolled-up interest is closely aligned with Payment in Kind (PIK) Debt, as both defer cash interest servicing and increase the lender’s exposure over the loan term. It is often compared with Capitalised Loan structures, although rolled-up interest is typically more straightforward in application and commonly used in bridging or mezzanine facilities. From a legal and security perspective, the accumulation of interest is usually protected under arrangements such as Continuing Security, ensuring lender rights extend to the full compounded balance. Developers and lenders will monitor this structure against metrics like Liquidity Risk, given the absence of interim payments and reliance on a successful exit.
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