Interest-Only Mortgage Calculator UK

An interest-only mortgage is a type of home loan where your monthly payments only cover the interest charged on the loan — you don't pay off any of the original amount borrowed (the capital). This means your monthly payments are significantly lower than a repayment mortgage, but you'll still owe the full loan amount at the end of your mortgage term.

For example, on a £250,000 mortgage at 5.5% interest, an interest-only payment would be around £1,146 per month, compared to approximately £1,535 for a repayment mortgage. That's nearly £400 per month difference — but remember, with interest-only you'll still owe £250,000 at the end.

Each month, you pay only the interest accrued on your loan. The capital remains unchanged throughout the term. Here's what that means in practice:

• Lower monthly payments: You're only paying interest, not reducing the debt
• Capital stays the same: Borrow £300,000, you'll still owe £300,000 at the end
• Repayment strategy needed: You must have a plan to repay the capital
• More interest paid overall: Because the capital never reduces, you pay interest on the full amount for the entire term

Some mortgages offer a "part and part" arrangement, where a portion is interest-only and a portion is repayment. This gives you some of the cash flow benefits while still reducing some capital.

While interest-only mortgages appear cheaper due to lower monthly payments, they typically cost more over the full term. This is because:

• You pay interest on the full loan amount for the entire term
• With repayment, the interest reduces as your balance decreases
• You still need to repay the capital somehow at the end

For a £250,000 mortgage over 25 years at 5.5%, the total interest on interest-only would be around £343,750, compared to approximately £210,500 for a repayment mortgage — that's over £130,000 more in interest alone.

Interest-only mortgages suit specific situations:

• Buy-to-let investors: Lower payments improve rental yield and cash flow
• High earners expecting a windfall: Such as inheritance, bonus, or pension lump sum
• Property developers: Planning to sell and repay within a short timeframe
• Those with robust investment strategies: Who can grow investments faster than the mortgage interest rate
• Short-term flexibility: Some take interest-only for a few years during career transitions

Interest-only is generally not recommended for first-time buyers or those without a solid repayment strategy. Lenders have strict criteria and typically require larger deposits.