1. What is an Interest Only Mortgage?

An interest only mortgage is a type of mortgage where you only pay the interest on the loan each month, rather than paying down the principal. The principal amount remains unchanged throughout the mortgage term unless you make overpayments.

2. How Does the Calculator Work?

The calculator uses the interest only mortgage formula:

Where:

• \( P \) — Principal amount (£)
• \( r \) — Annual interest rate (as decimal)

Explanation: The monthly payment is calculated by multiplying the principal amount by the monthly interest rate (annual rate divided by 12). Overpayments reduce the principal amount over time.

3. Importance of Overpayments

Details: Making overpayments on an interest only mortgage helps reduce the principal amount, which in turn reduces the total interest paid over the life of the loan and helps build equity in the property.

4. Using the Calculator

Tips: Enter the principal amount in pounds, annual interest rate as a percentage, and optional monthly overpayment amount. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the main advantage of an interest only mortgage?
A: Lower monthly payments compared to repayment mortgages, making it more affordable in the short term.

Q2: How do overpayments affect an interest only mortgage?
A: Overpayments reduce the principal amount, which decreases the total interest paid and helps build equity in the property.

Q3: Are there any risks with interest only mortgages?
A: Yes, the principal amount remains unchanged, so you need a repayment strategy at the end of the mortgage term.

Q4: Can I make regular overpayments?
A: Most lenders allow regular overpayments, but check your mortgage terms for any restrictions or fees.

Q5: Is this calculator specific to UK mortgages?
A: Yes, this calculator is designed for UK interest only mortgages with currency in pounds sterling.