Calculate your monthly interest-only mortgage payment in the UK. See how much your payments reduce when switching to interest-only and what your payments will be after the interest-only period ends.
What is an interest-only mortgage?
An interest-only mortgage means your monthly payments cover only the interest on the loan — no principal is repaid. At the end of the mortgage term, you must repay the full original amount borrowed.
Example: On a £200,000 mortgage at 5% interest:
- Interest-only payment: £833/month
- Repayment mortgage (25 years): £1,169/month
- Monthly saving: £336
The lower payment comes at a cost: you still owe the full £200,000 at the end of the term.
Interest-only vs repayment comparison
| Mortgage Amount | Rate | Interest-Only Payment | Repayment (25yr) | Monthly Difference |
|---|---|---|---|---|
| £150,000 | 4.5% | £563 | £833 | £270 |
| £200,000 | 5.0% | £833 | £1,169 | £336 |
| £250,000 | 5.0% | £1,042 | £1,461 | £419 |
| £300,000 | 5.5% | £1,375 | £1,840 | £465 |
Benefits of an interest-only mortgage
- Lower monthly payments — significantly reduces your monthly outgoings, freeing up cash flow
- Flexibility — useful if your income is irregular or you expect it to rise in the future
- Buy-to-let strategy — commonly used by landlords to maximise rental yield, since only interest is paid during the rental period
- Short-term relief — switching to interest-only temporarily can help through financial difficulties
Drawbacks of an interest-only mortgage
- No equity built — your mortgage balance stays the same throughout the term; you do not build equity through repayments
- Higher total cost — you pay more interest over the life of the mortgage because the principal never reduces
- Repayment risk — you must have a strategy to repay the full amount at the end of the term (savings, investments, property sale)
- Negative equity risk — if property values fall, you could owe more than the home is worth
- Harder to qualify — lenders require a credible repayment plan before approving an interest-only mortgage
Switching to interest-only for six months
If you are experiencing financial difficulties, the Mortgage Charter allows you to switch to interest-only payments for up to six months without an affordability check or any impact on your credit score.
How the six-month switch works
During the interest-only period, your payments drop because no principal is being repaid. After the period ends, your remaining mortgage is spread over the reduced remaining term, resulting in slightly higher payments.
Example: £200,000 mortgage at 5% over 20 years:
| Period | Monthly Payment |
|---|---|
| Normal repayment | £1,320 |
| During 6-month interest-only | £833 |
| After returning to repayment (19.5 years remaining) | £1,340 |
The £487/month saving during the six months comes at a cost of £20/month higher payments for the remaining term. Overall, you pay slightly more interest over the life of the mortgage.
Who can switch to interest-only?
Under the Mortgage Charter, most homeowners with a residential mortgage can request the six-month switch. You do not need to prove hardship, and it will not appear on your credit file.
What happens at the end of an interest-only mortgage?
At the end of the term, the full original mortgage amount is due. Options to repay include:
- Sell the property — use the proceeds to clear the mortgage
- Remortgage — take out a new mortgage, though this depends on your age and affordability at the time
- Use savings or investments — pay off the balance from accumulated funds
- Extend the term — some lenders may allow a term extension
- Downsize — sell your current home, buy something smaller, and use the difference to repay
If you cannot repay, the lender may require you to sell the property.
Frequently asked questions
How much are interest-only mortgage payments?
On a £200,000 mortgage at 5%, the interest-only payment is £833/month compared to £1,169/month on a 25-year repayment mortgage.
Can I switch to interest-only payments for six months?
Yes. The Mortgage Charter allows a six-month switch without an affordability check or credit score impact.
What happens at the end of an interest-only mortgage?
You must repay the full original loan amount. Options include selling, remortgaging, or using savings.
Is an interest-only mortgage a good idea?
It depends. Lower payments provide flexibility, but you never reduce the principal. It suits buy-to-let investors or those with a clear repayment strategy.
