Interest-only mortgage calculator

An interest-only mortgage is where the monthly payment to the lender simply covers the interest due. No capital is repaid throughout the term unless the borrower makes a payment through choice. The balance must be repaid on or before an agreed end date.

This is usually from the sale of the subject property or a form of investment. Generally, the main reason someone will arrange an interest-only mortgage is to keep their monthly costs down.

Interest rates on interest-only mortgages can and do change as with any other mortgage. Lenders who offer interest only mortgages usually offer the same interest rates as those on repayment. The good news is that you can typically still have a choice of rates such as:

• Fixed Rates
• Tracker Rates
• Discounted rates

There are however some lenders that will price a different range specifically for interest only. These will likely be higher than their repayment mortgage rates. This is due to the assumed increased risk these loans propose.
An indication of the latest interest only rates can be found on our latest rates page.

Most borrowers can get an interest only mortgage if they can demonstrate the relevant acceptable repayment vehicle. They will also need to have a minimum level of equity. The repayment vehicle could be the sale of the subject property or a form of investment.

It’s the proposed repayment vehicle that will dictate if the borrower qualifies. This is due to all lenders having their own individual criteria.

One of the most popular repayment vehicles now is the sale of the mortgaged property. This is typically due to peoples plans of selling and downsizing. To qualify for this, many lenders have strict criteria including:

• Minimum level of equity i.e. the loan to value
• Minimum personal income levels

Not all lenders will consider interest-only. Those that do will have fairly strict criteria of who will be permitted to have this type of mortgage. Saying this, for those that do qualify the choice is now relatively large.

Having an interest-only mortgage does not necessarily mean that a lender feels you can afford to borrow more. Whilst your monthly payment will be lower, a lender still needs to be satisfied about the longer term plan of the mortgage being repaid.

In certain circumstances it can enable a higher level of borrowing. This may be true in circumstances such as where the maximum mortgage term is restricted by age.

Knowing you can pay you mortgage is vital. Not taking on more than you can afford is paramount in any decisions you or the lender makes. An indication of your borrowing capacity can be found using our affordability calculator.

Interest-only is one method of arranging your mortgage. The two other types are:

Capital and interest – Sometimes more commonly referred to as a repayment mortgage. This is where the monthly payment consists of the interest for the loan together with a calculated amount of capital. The amount paid each month then gives the assurance that the loan will be repaid at the end of the term.

Part and part – This method is a combination of repayment and interest-only. Some of the mortgage is therefore being repaid each month where some will simply be just the interest. This is slightly more unusual and less commonplace than simply having all one method.
This type of mortgage can be useful for some. For example, where a full interest-only is not available, or they only have an investment to over some of the borrowing.