Interest-Only Mortgage Calculator

With an interest-only mortgage you pay just the interest for a set time, so the amount you owe stays the same. After that, the whole loan still has to be repaid, either over the years that are left (the payment goes up) or in one go at the end.

The formula

i = yearly rate ÷ payments a year
interest-only payment = loan × i
payment after = balance × i ÷ (1 − (1 + i)^−n), where n = payments left
repayment mortgage payment = loan × i ÷ (1 − (1 + i)^−N), where N = all payments
total interest = everything you pay − the loan
savings plan to repay B: saving = (B − savings now × (1 + j)^N) × j ÷ ((1 + j)^N − 1), where j = savings return ÷ payments a year

Worked example

A 200,000 loan at 6% a year over 30 years, interest-only for the first 10. The rate per month is i = 6 ÷ 12 ÷ 100 = 0.005.

Interest-only payment: 200,000 × 0.005 = 1,000 a month. Over 120 months that is 120,000, all of it interest, and you still owe 200,000.

Then the 200,000 is repaid over the 240 months left. (1.005)⁻²⁴⁰ = 0.302096, so the payment is 1,000 ÷ (1 − 0.302096) = 1,000 ÷ 0.697904 = 1,432.86 a month, a jump of 43.3%.

The 240 payments add up to 240 × 1,432.8621 = 343,886.91, so the total interest is 120,000 + 343,886.91 − 200,000 = 263,886.91.

A normal repayment mortgage over the full 30 years: (1.005)⁻³⁶⁰ = 0.166042, so the payment is 1,000 ÷ 0.833958 = 1,199.10 a month, and 360 × 1,199.1011 = 431,676.38, so 231,676.38 interest. Interest-only for 10 years costs 263,886.91 − 231,676.38 = 32,210.53 more.

Interest-only to the end and a savings plan

If the loan stays interest-only for all 30 years you pay 1,000 a month (360,000 of interest) and still owe 200,000 at the end. To build 200,000 in savings at 4% a year: j = 0.04 ÷ 12 = 0.0033333 and (1 + j)³⁶⁰ = 3.313498, so the saving is 200,000 × 0.0033333 ÷ 2.313498 = 666.67 ÷ 2.313498 = 288.16 a month. That is 1,288.16 a month in all, and the return is not guaranteed: if your savings grow more slowly, you will be short at the end.

Part and part

With half the loan interest-only and half repaid from day one, you pay 100,000 × 0.005 = 500 of interest plus 599.55 on the repayment half: 1,099.55 a month for the first 10 years, then 1,315.98 once both halves are being repaid.

Things to know

• Lenders usually want to see how you will repay the loan at the end, and often lend a smaller share of the home's value on interest-only.
• Many interest-only deals have a variable rate or a fixed rate for a few years only. Use the new rate field to see what a higher rate would do.
• Overpayments come straight off the balance. Check your lender's overpayment limit and any early repayment charges.

This is an estimate for planning, not financial advice. It assumes the rates you enter and level payments; your lender may round payments, charge fees or work out interest daily. Check your mortgage offer and speak to a qualified adviser before you decide.