Home
Back
Interest Only Mortgage Formula:
| From: | To: |
An interest-only mortgage is a type of mortgage where the borrower pays only the interest on the principal balance for a set period, with the principal amount remaining unchanged. This results in lower monthly payments during the interest-only period.
The calculator uses the interest-only mortgage formula:
Where:
Explanation: The calculation multiplies the principal amount by the monthly interest rate to determine the interest-only payment amount.
Details: Understanding interest-only payments helps borrowers plan their finances during the interest-only period and prepare for when principal payments begin. It's particularly relevant for UK mortgage products.
Tips: Enter the principal amount in GBP and the monthly interest rate as a decimal (e.g., 0.005 for 0.5%). Both values must be positive numbers.
Q1: What is an interest-only mortgage?
A: An interest-only mortgage is a loan where you only pay the interest for a set period, after which you must repay the principal in full or switch to a repayment mortgage.
Q2: How is monthly interest rate calculated from annual rate?
A: Divide the annual interest rate by 12. For example, 6% annual rate = 0.06/12 = 0.005 monthly rate.
Q3: What happens at the end of the interest-only period?
A: You must have a repayment strategy in place, such as selling the property, using investments, or switching to a repayment mortgage.
Q4: Are interest-only mortgages still available in the UK?
A: Yes, but they are less common than repayment mortgages and typically require a solid repayment strategy to be approved.
Q5: What are the advantages of interest-only mortgages?
A: Lower monthly payments during the interest-only period, which can help with cash flow or allow for investment elsewhere.