How Do I Calculate Interest Only Mortgage Payments?
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
Why This Matters for Your Mortgage
Understanding these details helps you make informed decisions during the mortgage process. Every element of your application—from deposits to documentation—affects your approval chances and the rates you can access.
Lenders assess applications holistically, weighing multiple factors together. Knowing what they look for allows you to present the strongest possible application. This is particularly important for non-standard situations where lender criteria varies significantly.
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Related Questions
For more detailed information about this topic, visit our comprehensive guide:
Interest Only Mortgages
Content reviewed: January 2026
CeMAP awarded by The London Institute of Banking & Finance. Cert CII (MP) awarded by the Chartered Insurance Institute.