How this number is made
An interest-only payment is the balance times the rate, divided by twelve. Nothing comes off what you owe. The payment is lower than a repayment loan for that reason, and the debt is still there at the end.
- Use the balance during the interest-only period, not the original purchase if you have already paid some down.
- Use the interest rate on this portion of the loan. A split loan has a repayment piece this page does not see.
- Plan the exit. Sale, savings, or a switch to repayment has to clear the same balance.
Formula
Monthly interest = balance × annual rate ÷ 12. The balance next month is the same balance.
Worked example
£200,000 at 5.5% costs £916.67 a month and £11,000 a year. After a year of paying it, £200,000 is still owed.
Questions
How does this compare with a repayment mortgage?
A repayment payment is higher because it includes principal. The mortgage page on this site prices that. This page is only the interest.
Are fees included?
No. A product fee or an annual admin charge sits on top. The rate here is the interest rate, not an APR that has already folded fees in.