How to Calculate Interest-Only Mortgage

What is Interest-Only Mortgage?

An interest-only mortgage is a home loan where monthly payments cover only the interest, not the capital. The full loan balance remains outstanding until the end of the mortgage term. Popular before 2008, now strictly regulated with lenders requiring a repayment plan.

Formula

Monthly payment = Loan balance × (Annual interest rate / 12)

Step-by-Step Guide

1Monthly payment = Loan balance × (Annual interest rate / 12)
2At end of term: repay full capital (typically via savings, investments, or property sale)
3Much lower monthly payments than repayment mortgage (20–30% less)
4Total interest paid is higher because balance never reduces

Worked Examples

Input

£250,000 interest-only at 4.5% for 25 years

Result

£938/month

vs £1,388/month repayment — but owe £250,000 at end

Frequently Asked Questions

What is Interest Only Mortgage?

An interest-only mortgage is a home loan where monthly payments cover only the interest, not the capital. The full loan balance remains outstanding until the end of the mortgage term

How accurate is the Interest Only Mortgage calculator?

The calculator uses the standard published formula for interest only mortgage. Results are accurate to the precision of the inputs you provide. For financial, medical, or legal decisions, always verify with a qualified professional.

What units does the Interest Only Mortgage calculator use?

This calculator works with inches, percentages. You can enter values in the units shown — the calculator handles all conversions internally.

What formula does the Interest Only Mortgage calculator use?

The core formula is: Monthly payment = Loan balance × (Annual interest rate / 12). Each step in the calculation is shown so you can verify the result manually.

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