Interest-Only Mortgage Calculator
Interest-only mortgages look appealing on paper because the monthly payment is noticeably lower than an equivalent repayment mortgage. Our interest-only mortgage calculator puts both options side by side, and — critically — shows what a repayment vehicle such as an ISA or investment plan would need to earn to actually clear the loan by the end of the term.
Interest-Only Mortgage Calculator
Compare interest-only against repayment side by side, and see what a repayment vehicle would need to earn to clear the loan.
Why Lenders Are Cautious About Interest-Only
On an interest-only mortgage, none of your monthly payment reduces the capital you owe — you are only covering the interest. At the end of the term, the full original loan amount is still due in one go. This is exactly why lenders significantly restrict interest-only lending today, following widespread problems in the years after many interest-only mortgages sold in the 1990s and 2000s reached maturity without an adequate repayment plan in place. Most lenders now require a clearly evidenced repayment strategy — savings, investments, a pension lump sum, or a planned sale — before agreeing interest-only terms, and will often cap the maximum LTV more tightly than for repayment mortgages.
What “Repayment Vehicle Needed” Actually Means
If you are considering interest-only, the honest question is not “can I afford the lower monthly payment” but “can I realistically build up enough, separately, to clear the full loan by the end of the term”. This calculator estimates the monthly amount you would need to invest, at an assumed growth rate, to accumulate the full loan value by the end of your mortgage term — giving you a genuine like-for-like comparison against a standard repayment mortgage, rather than just comparing the two monthly payments in isolation.
A Worked Example
On a £220,000 loan at 4.7% over 25 years, a repayment mortgage costs around £1,254 a month and clears the loan entirely by the end of the term. The equivalent interest-only payment is around £862 a month — a saving of roughly £392 a month — but the full £220,000 remains owed. To replace that capital using a repayment vehicle growing at an assumed 5% a year, you would need to invest roughly £328 a month on top of the interest-only payment, bringing your combined monthly cost to around £1,190 — still slightly less than the repayment mortgage, but with far more risk, since investment returns are not guaranteed in the way capital repayment is.
When Interest-Only Can Make Sense
Interest-only is sometimes appropriate for buy-to-let investors (where the property itself, or its eventual sale, is the repayment strategy), for those with a maturing pension lump sum timed to coincide with the mortgage end date, or for sophisticated investors comfortable with the risk of a dedicated investment plan. It is generally unsuitable as a way of simply making an unaffordable mortgage look affordable on paper.
A Middle Ground: Part-and-Part Mortgages
Some lenders offer “part-and-part” mortgages, splitting your loan between a repayment portion and an interest-only portion. This can suit borrowers who want a lower monthly payment than a full repayment mortgage, but who are not comfortable with the full risk and discipline required of a purely interest-only arrangement. The repayment portion guarantees that at least part of the capital is being cleared automatically, while the interest-only portion still requires its own smaller, more manageable repayment vehicle. It is a useful option to discuss with a mortgage adviser if the full comparison in this calculator suggests pure interest-only carries more risk than you are comfortable with, but a full repayment mortgage feels tighter than you would like.
Frequently Asked Questions
Can I switch from interest-only to repayment later?
Often yes, either at your next remortgage or sometimes mid-term with your existing lender, though your monthly payment will rise once you start paying down capital as well as interest.
What counts as an acceptable repayment vehicle?
Lenders commonly accept ISAs, endowment policies, pensions (subject to rules), investment portfolios, or the sale of the mortgaged property itself or another property, provided there is sufficient equity.
Is interest-only cheaper overall?
Not necessarily — while the mortgage payment itself is lower, once you add a genuine repayment vehicle contribution the combined cost can be similar to, or even exceed, a standard repayment mortgage, with added investment risk.
Can first-time buyers get interest-only mortgages?
It is possible but uncommon and typically requires a strong, evidenced repayment strategy. Most first-time buyers in the UK take out repayment mortgages instead.