How do you calculate interest only mortgage payments?

Interest only payment = (Loan amount × Interest rate) ÷ 12. For a £250,000 mortgage at 5%: £250,000 × 0.05 ÷ 12 = £1,042 per month. You only pay interest, so the loan balance doesn't reduce. At the end of the term, you still owe the full £250,000.

How do you calculate interest only mortgage payments?

Interest only payment = (Loan amount × Annual interest rate) ÷ 12. For example, £250,000 at 5% = £250,000 × 0.05 ÷ 12 = £1,042 per month. You only pay interest, not capital, so the balance stays the same throughout the term.

How much cheaper is interest only vs repayment?

Interest only is typically 25-40% cheaper monthly. On a £250,000 mortgage at 5% over 25 years: interest only = £1,042/month, repayment = £1,461/month. That's £419/month or £5,028/year less. However, you still owe the full £250,000 at the end.

Can I get an interest only mortgage in 2024?

Yes, but criteria are strict. Most lenders require 25-50% deposit, a credible repayment strategy (investments, pension, property sale), and the property is often worth £300,000+. Some lenders offer part-and-part mortgages combining interest only with repayment.

What happens at the end of an interest only mortgage?

You must repay the full loan amount. Options include: selling the property, using savings/investments, taking a new mortgage (age permitting), or switching to repayment. If you can't repay, the lender may repossess the property.

Is interest only good for buy-to-let?

Interest only is popular for buy-to-let because lower payments improve cash flow and rental yield. The plan is usually to sell the property to repay the mortgage, or hold long-term and benefit from capital growth. Tax treatment also favours interest payments.

Can I switch from interest only to repayment?

Yes, most lenders allow this. Your monthly payments will increase significantly but you'll start paying off the capital. This is often done mid-term when finances improve, or as the end of an interest only term approaches.

Quick Answer

How Much Are Interest Only Mortgage Payments?

Last reviewed: December 2025

Reviewed by Jay Sabine – CeMAP Qualified – 29 years experience

Interest only payments = loan × rate ÷ 12. A £250,000 mortgage at 5% costs £1,042/month interest only vs £1,461/month repayment. You save £419/month but still owe the full amount at term end.

Interest only mortgages have lower monthly payments because you're not repaying any capital. This can improve affordability or cash flow, but you need a plan to repay the loan at the end. Lenders now require strict proof of how you'll repay the capital.

Key Points

125-40% lower monthly payments
2Full balance owed at term end
3Requires repayment strategy
4Usually needs 25-50% deposit
5Popular for buy-to-let
6Can switch to repayment later

Eligibility Criteria

Typically need 25-50% deposit
Must have credible repayment strategy
Higher income thresholds apply
Property value usually £300k+
May need existing equity or assets

Typical Timeframe

Interest only terms are typically 25-35 years. You must have a plan to repay the capital by term end. Most lenders review your repayment strategy periodically.

Next Steps

1Calculate your monthly payments
2Decide on repayment strategy
3Check deposit requirements
4Compare lender criteria
5Speak to a mortgage adviser

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Related Questions

Interest only mortgages explained

Interest only vs repayment

Part and part mortgages

Retirement interest only

For more detailed information about this topic, visit our comprehensive guide:

Calculators

Jay Sabine

CeMAP Qualified

29 Years Experience

Content reviewed: January 2026

Interest Only vs Repayment Comparison

£250,000 Mortgage at 5% Over 25 Years

Type	Monthly Payment	Total Paid	Capital Owed at End
Interest Only	£1,042	£312,500	£250,000
Repayment	£1,461	£438,300	£0

Monthly difference: £419/month (£5,028/year). However, with interest only you still owe the full £250,000.

Accepted Repayment Strategies

ISA savings

Tax-free growth, flexible access

Pension lump sum

25% tax-free, rest taxed

Investment portfolio

Growth potential but market risk

Property sale

Downsizing or selling investment property

Endowment policy

Less common now, check projections

Inheritance

Not guaranteed, not recommended alone

Important Considerations

You pay more interest overall because the balance never reduces
Property values can fall, leaving you in negative equity
Investment performance is not guaranteed
Can switch to repayment at any time (payments will increase)

Quick Calculation Formula

Monthly Payment = (Loan Amount × Annual Rate) ÷ 12

Example: £300,000 at 4.5% = (£300,000 × 0.045) ÷ 12 = £1,125/month