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. Some calculators may also allow you to input additional information, such as the expected growth rate of your repayment vehicle (e.g., an investment portfolio), to give you a more comprehensive view of your financial situation.

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.

Suitability: Interest-only mortgages may be suitable for those with high incomes or significant assets, who are confident in their ability to repay the capital later.

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.

Repayment vehicle details (optional): If you have a specific plan for repaying the capital (e.g., an investment portfolio), you can input the expected growth rate or estimated value at the end of the term.

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 a well-performing investment portfolio, you can use the proceeds to repay the capital.
• Savings: You can build up savings over the mortgage term to cover the repayment.
• Downsizing: Selling your home and moving to a smaller property can release equity to repay the loan.
• Equity release: This involves releasing equity from your home to repay the mortgage, but it can have significant implications for your estate and may not be suitable for everyone.
• Refinancing: You can switch to a repayment mortgage or secure a new interest-only mortgage with another lender, subject to meeting their 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.