1. What is Interest-Only Mortgage Payment?

Interest-only mortgage payments cover only the interest portion of the loan, without reducing the principal balance. This is commonly used in buy-to-let mortgages where rental income covers the interest payments while the property appreciates in value.

2. How Does the Calculator Work?

The calculator uses the interest-only payment formula:

Where:

• \( EMI \) — Monthly interest payment (£)
• \( P \) — Principal loan amount (£)
• \( r \) — Annual interest rate (decimal)

Explanation: The formula calculates the monthly interest payment by dividing the annual interest rate by 12 and multiplying by the principal amount.

3. Importance of Interest-Only Calculation

Details: Accurate interest-only payment calculation is crucial for buy-to-let investors to ensure rental income covers mortgage costs and to assess property investment viability.

4. Using the Calculator

Tips: Enter the principal loan amount in pounds and the annual interest rate as a percentage. All values must be valid (principal > 0, rate > 0).

5. Frequently Asked Questions (FAQ)

Q1: What is the main advantage of interest-only mortgages?
A: Lower monthly payments compared to repayment mortgages, making properties more affordable for investors relying on rental income.

Q2: What happens at the end of an interest-only mortgage term?
A: The full principal amount remains due and must be repaid through property sale, refinancing, or other means.

Q3: Are interest-only mortgages suitable for all investors?
A: They are best suited for experienced investors with a clear exit strategy and understanding of the risks involved.

Q4: How does rental income affect interest-only mortgage decisions?
A: Rental income should ideally cover the interest payments plus additional costs to make the investment profitable.

Q5: What are the risks of interest-only mortgages?
A: Property value depreciation, inability to repay the principal, and interest rate increases can create financial challenges.