Interest-Only Mortgage Payments and Repayment Guide

Calculate the illustrative monthly interest

For a simple constant-rate illustration, multiply the outstanding balance by the annual rate and divide by 12. A £200,000 balance at 5% gives £10,000 annual interest, or about £833.33 per month. Lender timing, rate changes and day-count methods can make an actual payment differ.

Compare the repayment structure

A capital-and-interest payment is calculated to cover interest and reduce capital over the selected term. Using the same £200,000, 5% and 25-year assumptions, the standard monthly-payment formula gives about £1,169.18. After 25 years the modelled balance reaches zero; the interest-only illustration still leaves £200,000 to repay.

Do not call the difference a saving

The roughly £335.85 monthly gap in that example is not automatically a saving. It reflects capital that is not being repaid. Compare the cost, risk and likely outcome of the separate repayment strategy as well as the mortgage payment.

Test a repayment strategy

• Name the asset, investment, sale proceeds or other source intended to repay capital.
• Record its current value, contributions, assumptions, access date and ownership.
• Test lower growth, missed contributions and an earlier required repayment.
• Check what evidence the lender accepts and how often it reviews the plan.
• Define a fallback that does not assume refinancing or a future property price.

Stress the interest rate

At 7%, the same £200,000 interest-only balance produces about £1,166.67 monthly interest. Run several rates and compare them with household income, committed expenditure, insurance, maintenance and emergency reserves outside this calculator.

Questions for the lender or adviser

Confirm whether the product is genuinely interest-only, part-and-part or temporarily interest-only; when the capital is due; overpayment terms; review requirements; fees; and what happens if the repayment strategy falls short. Keep the lender's current illustration with the figures used.

Advice boundary

This is educational arithmetic, not an affordability assessment, product recommendation or prediction. Mortgage structure and repayment strategy can have serious consequences and should be discussed with the lender or an appropriately qualified mortgage adviser.