1. What is an Interest-Only Mortgage?

An interest-only mortgage is a type of loan where the borrower pays only the interest on the principal balance for a set period, with the principal amount remaining unchanged. This type of mortgage is commonly used for buy-to-let properties as it results in lower monthly payments during the interest-only period.

2. How Does the Calculator Work?

The calculator uses the interest-only mortgage formula:

Where:

• \( P \) — Principal amount (currency units)
• \( R \) — Annual interest rate (%)

Explanation: The formula calculates the monthly interest payment by converting the annual interest rate to a monthly rate and applying it to the principal amount.

3. Importance of Interest-Only Mortgage Calculation

Details: Calculating interest-only mortgage payments is crucial for property investors to understand their monthly financial commitments, assess cash flow, and determine the affordability of buy-to-let investments.

4. Using the Calculator

Tips: Enter the principal amount in currency units and the annual interest rate as a percentage. Both values must be positive numbers to calculate the monthly payment.

5. Frequently Asked Questions (FAQ)

Q1: What is the main advantage of an interest-only mortgage?
A: The main advantage is lower monthly payments during the interest-only period, which can improve cash flow for property investors.

Q2: What happens at the end of the interest-only period?
A: At the end of the interest-only period, borrowers must either repay the full principal amount or refinance the loan, which may result in significantly higher payments.

Q3: Are interest-only mortgages riskier than repayment mortgages?
A: Yes, they carry more risk as the principal debt doesn't decrease over time, and borrowers need a solid plan to repay the principal at the end of the term.

Q4: Who typically uses interest-only mortgages?
A: They are commonly used by property investors for buy-to-let properties and by individuals who expect to have a large sum of money available at the end of the mortgage term.

Q5: Can I switch from an interest-only to a repayment mortgage?
A: Yes, many lenders allow borrowers to switch to a repayment mortgage, but this will result in higher monthly payments as you start paying down the principal.