Interest Only
Mortgage Calculator

An interest-only mortgage calculator is a tool designed to help you estimate the monthly interest payments on an interest-only mortgage. Unlike a repayment mortgage calculator, which factors in both interest and principal repayment, an interest-only calculator focuses solely on the interest portion. This is because with an interest-only mortgage, you only pay the interest on the loan each month, not the actual loan amount itself.

This calculator can be used for residential mortgages, buy-to-let mortgages, and commercial mortgages, as the underlying principle of calculating interest payments remains the same across all loan types.

The calculator takes into account factors like the loan amount and interest rate to determine the monthly interest payment. 

With an interest-only mortgage, your monthly payments only cover the interest on the loan, leaving the original borrowed amount (the capital) to be repaid at the end of the mortgage term. This results in lower monthly payments compared to a repayment mortgage, where each payment contributes to both the interest and the capital.

The key differences are:

• Monthly payments: Lower for interest-only mortgages.
• Capital repayment: Due in full at the end of the term for interest-only mortgages, gradually paid off throughout the term for repayment mortgages.
• Risk: Higher for interest-only mortgages, as you need a reliable plan to repay the capital.

To get the most accurate results from an interest-only mortgage calculator, you’ll need the following information:

• Loan amount: The total amount you plan to borrow.
• Interest rate: The annual interest rate on your mortgage.

The interest-only mortgage calculator can help you:

• Estimate monthly interest payments: See how much you’ll need to budget each month for your mortgage.
• Assess affordability: Determine whether an interest-only mortgage is financially viable for you.
• Evaluate repayment vehicles: If you have a plan to repay the capital, the calculator can help you track its progress and ensure it’s on track to meet your goal.

Compare different scenarios: Experiment with different loan amounts and interest rates to find the best option for your needs.

There are several ways to repay the capital on an interest-only mortgage:

• Investment Portfolio: If you have investments, such as stocks or bonds, you can sell them to repay the capital at the end of the term.
• Savings: Consistently saving a portion of your income throughout the mortgage term can provide the funds needed to repay the capital.
• Downsizing: Selling your current property and moving to a smaller or less expensive one can free up equity to repay the loan.
• Inheritance or Gift: Some borrowers plan to use an inheritance or a significant gift to repay the capital.
• Refinancing: You could remortgage to a repayment mortgage or secure a new interest-only mortgage with a different lender, subject to affordability and their lending criteria.

It’s important to have a solid plan for repaying the capital before taking out an interest-only mortgage. Seek professional financial advice if you’re unsure about the best option for you.