What is the Interest Only Mortgage Formula?

The interest only mortgage formula is: Monthly Payment = (Loan Amount × Annual Interest Rate) ÷ 12. For example, a £200,000 loan at 5% = (£200,000 × 0.05) ÷ 12 = £833.33 per month. This covers only the interest - you still owe the full loan amount at the end of the term.

Learn more about remortgage options in our detailed guide.

What is the formula for interest only mortgage payments?

The formula is: Monthly Payment = (Loan Amount × Annual Interest Rate) ÷ 12. For example, a £200,000 mortgage at 5% interest = (£200,000 × 0.05) ÷ 12 = £833.33 per month. This only covers interest - the original loan amount remains unchanged.

How do I calculate interest only vs repayment?

Interest only payments are simpler to calculate - just multiply the loan by the interest rate and divide by 12. Repayment mortgages use a more complex amortisation formula that includes principal reduction. A £200,000 loan at 5% over 25 years costs £833/month interest-only but £1,169/month on repayment.

Why are interest only payments lower?

Interest only payments are lower because you're not repaying any of the original loan amount (principal). You only pay the cost of borrowing the money. However, at the end of the term, you still owe the full original amount and need a repayment strategy.

Can I switch from interest only to repayment?

Yes, most lenders allow you to switch from interest only to repayment at any time. Your monthly payments will increase but you'll be building equity. You may need to pass affordability checks. Contact your lender to arrange the switch.

How much would I pay on a £150,000 interest only mortgage?

At current rates around 5%, a £150,000 interest only mortgage would cost approximately £625 per month (£150,000 × 0.05 ÷ 12). At 4%, it would be £500/month. At 6%, it would be £750/month. The payment changes when interest rates change.

What repayment strategy do I need for interest only?

You need a credible plan to repay the capital at the end of the term. Acceptable strategies include: selling the property, using investments/ISAs/pensions, selling another property, or switching to repayment mortgage later. Lenders require evidence of your strategy.

Quick Answer

How Do I Calculate Interest Only Mortgage Payments?

Last reviewed: December 2025

Reviewed by Jay Sabine – CeMAP Qualified – 29 years experience

Use the formula: (Loan Amount × Interest Rate) ÷ 12. A £200,000 mortgage at 5% = £833.33 monthly.

Interest only mortgage calculations are straightforward compared to repayment mortgages. You simply multiply the total loan amount by the annual interest rate (as a decimal), then divide by 12 for the monthly payment. For example, if you borrow £250,000 at 5% interest: £250,000 × 0.05 = £12,500 annual interest, divided by 12 = £1,041.67 per month. Unlike repayment mortgages, your monthly payment doesn't reduce the loan - you pay the same amount throughout the term and still owe the full £250,000 at the end.

Interest only mortgages mean you don't build equity through payments. You need a strategy to repay the full loan at the end. Your home may be repossessed if you do not keep up repayments.

Key Points

1Formula: (Loan × Interest Rate) ÷ 12 = Monthly Payment
2Only covers interest - loan balance stays the same
3Payments change when interest rates change
4Lower monthly cost than repayment mortgages
5Need a repayment strategy for the capital
6Lenders typically require 50%+ equity for interest only

Eligibility Criteria

Usually need at least 25-50% deposit/equity
Must have a credible repayment strategy
Often age-restricted (typically max 70-75 at term end)
Higher income requirements than repayment
Lender must approve your repayment plan

Typical Timeframe

Interest only payments remain constant unless interest rates change (on variable/tracker deals) or you remortgage to a new rate. At the end of your mortgage term (typically 25 years), the full loan amount must be repaid.

Next Steps

1Calculate your monthly payment using the formula
2Compare interest only vs repayment costs
3Consider your repayment strategy carefully
4Speak to a mortgage adviser about eligibility
5Factor in potential rate changes over the term

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Loan Amount	Interest Rate	Monthly Payment
£100,000	4%	£333.33
£150,000	4.5%	£562.50
£200,000	5%	£833.33
£250,000	5.5%	£1,145.83
£300,000	5%	£1,250.00
£400,000	4.5%	£1,500.00

How Do I Calculate Interest Only Mortgage Payments?

Key Points

Eligibility Criteria

Typical Timeframe

Next Steps

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