Precision Utility
Interest Only Mortgage
Calculator
Interest Only
Lower £/mo
Capital Owed
100%
Calculate your monthly interest only mortgage payments and compare them against a standard repayment mortgage. With an interest only deal you pay just the interest each month — your monthly cost is significantly lower, but you still owe the full loan amount at the end of the term. Use this calculator to see the numbers side by side and plan your repayment strategy.
Loan Parameters
Monthly Interest Only Payment
£1,041.67
Total Interest
£312,500
Balance at End
£250,000
Repayment /mo
£1,461.59
Monthly Saving
£419.92
Interest Only Total Cost
£562,500
Repayment Total Cost
£438,477
Extra Interest vs Repayment
£124,023
Capital not repaid
You will still owe the full £250,000 at the end of the 25-year term. You need a repayment vehicle — such as an ISA, pension, or property sale — to clear the debt.
How an interest only mortgage works
With an interest only mortgage, your monthly payments cover just the interest on your loan — you don't pay off any of the capital. This means your payments are significantly lower than a standard repayment mortgage, but at the end of the term you still owe the full amount you originally borrowed.
For example, if you borrow £250,000 at 5% interest over 25 years, your monthly payment is just £1,041.67. On a repayment mortgage, you'd pay around £1,461.59 per month — but you'd own the property outright at the end.
The calculator above works out your monthly interest only payment using a simple formula: loan amount × annual interest rate ÷ 12. It then compares this to the equivalent repayment mortgage using a standard amortisation formula, so you can see exactly how much you save each month and how much more interest you'll pay over the full term.
You need a credible plan to repay the capital at the end of the term. Common repayment vehicles include stocks and shares ISAs, personal pensions, endowment policies, or selling the property itself.
What you need to know about interest only mortgages
Interest only mortgages became much harder to obtain after the 2014 Mortgage Market Review (MMR). Lenders now require a credible repayment strategy before approving your application. Here's what you should know:
- Repayment plan required — your lender must be satisfied you can repay the capital. Acceptable vehicles include ISAs, pensions, investments, or the sale of another property
- Lower LTV required — most lenders cap interest only at 75% loan-to-value, meaning you need at least a 25% deposit
- Minimum loan sizes — many lenders set a floor of £75,000–£100,000 for interest only deals
- Popular with buy-to-let — landlords often use interest only to keep costs low and maximise rental yield
- Negative equity risk — if property values fall, you could owe more than the property is worth with no capital paid down
- You can switch — most lenders allow you to convert from interest only to repayment at any time during the term
This calculator provides estimates for comparison purposes. For personalised mortgage advice, speak to a qualified financial adviser. Rates and eligibility criteria vary between lenders.
Frequently asked questions
What happens at the end of an interest only mortgage?
You still owe the full original loan amount because your monthly payments only covered the interest. You must repay the capital in full — typically by selling the property, using savings, an ISA, a pension lump sum, or switching to a repayment mortgage for the remaining balance.
Can I switch from interest only to repayment?
Yes. Most UK lenders allow you to switch from interest only to a repayment mortgage during your term. Your monthly payments will increase because you'll start paying off the capital as well as the interest. Contact your lender to arrange the switch — there is usually no fee.
How much cheaper is an interest only mortgage per month?
Interest only payments are significantly lower because you're not repaying any capital. For example, a £250,000 mortgage at 5% costs roughly £1,042 per month interest only, compared to about £1,462 on a 25-year repayment basis — a saving of around £420 per month.
Who qualifies for an interest only mortgage in the UK?
Since the 2014 Mortgage Market Review, lenders require a credible repayment plan before approving an interest only mortgage. This could be investments, ISAs, pension proceeds, sale of another property, or other assets. Most lenders set a minimum loan size and require lower LTV ratios than repayment mortgages.
Is an interest only mortgage a good idea for buy-to-let?
Many buy-to-let landlords choose interest only because it keeps monthly costs low, maximising rental yield. The plan is typically to repay the capital by selling the property at the end of the term. However, this relies on property values holding steady or rising — negative equity is a real risk.
What repayment vehicles can I use?
Common repayment vehicles include stocks and shares ISAs, personal pensions, endowment policies, other property sales, savings accounts, or a combination of these. Your lender will assess whether your chosen vehicle is realistic and sufficient to repay the loan at the end of the term.
How do I calculate my interest only mortgage payment?
Multiply your loan amount by the annual interest rate, then divide by 12. For example, a £200,000 loan at 5% costs £200,000 × 0.05 ÷ 12 = £833.33 per month. Use the calculator above to get an instant result with a full comparison to repayment costs.