How to use it
- Enter Loan balance.
- Enter Annual rate %.
The formula
Monthly payment = balance × annual rate ÷ 12.
Worked example
About this calculator
Interest-only mortgages split the cost of a loan into its rawest form: the price of borrowing, with no repayment built in. That makes the monthly figure dramatically lower than a repayment mortgage — and makes it easy to underestimate the true cost of the property.
Compare the interest-only payment here with the same loan on our standard mortgage calculator. The difference is exactly the principal you'd be repaying — money that builds your equity instead of disappearing. If you'd only be comfortable with the interest-only figure, the honest conclusion is usually that the loan is too large.
Frequently asked questions
Why is the payment lower than a repayment mortgage?
You're not repaying any principal — only renting the money.
What happens at the end of the term?
The full balance is due. You need a repayment plan: sale, savings, or switching to a repayment loan.
Who uses interest-only?
Landlords managing cash flow, and borrowers expecting a lump sum later. It carries real risk if no repayment vehicle exists.
Tips
- Compare the total interest, not just the monthly payment.
- A larger down payment lowers both the loan and any insurance.
- Even small extra principal payments cut years off the term.
Key terms
- Principal
- The amount borrowed, before interest.
- Amortization
- Spreading repayment into equal periodic payments.
- Escrow
- Funds held for taxes and insurance.