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Interest Only Mortgage Payment Calculator | UK

Calculate your monthly interest only mortgage payment on a mortgage in the United Kingdom. See how much your mortgage payment will reduce when changed to an interest only mortgage payment for up to six months and what your mortgage payment will be after the period ends.

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What is an interest only mortgage in the UK?

An interest only mortgage in the UK allows you to make monthly payments that only cover the interest related to the mortgage. This means that with each mortgage payment made, there is no principal that is being paid down on the amount originally borrowed. At the end of your mortgage term there will still be the original mortgage amount outstanding that will need to be paid back.

What are the benefits to an interest only mortgage?

Since an interest only mortgage requires that you only pay for the interest on the loan and there is no principal repaid, an interest only mortgage will have lower monthly payments when compared to that of a normal mortgage payment. This lower payment can be helpful to afford a home if you are just starting out a career and expect good income progression over the following years. This lower payment can also be a good option if you are experiencing financial difficulties and need to free up cashflow.

What are the drawbacks to an interest only mortgage?

Since the principal is not being paid down on your home you are paying the same high interest payment over the course of the loan. This means that over the period of the loan, you will pay more interest when compared to that of a normal principal repayment mortgage. With an interest only mortgage, you are more likely to have a negative equity balance when compared to that of a principal repayment mortgage. This increased exposure to the housing market and home prices may make it difficult to remortgage at the end of your term if you don’t have the capital to repay the full interest only mortgage.

Switching to interest only mortgage payment for six-months

If you are experiencing financial difficulties and need to reduce your mortgage payment, you can switch to interest only payments for six-months. This will allow you to make interest only payments on your mortgage with no impact to your credit score. At the end of the six-months your monthly payments will increase to make up for the preiod of reduced payments. You can see how your payments will be impacted with our interest only mortgage calculator above.

The overall result of making interest only payments means that you will end up paying back more overall compared to that of your intial mortgage payment contract. This is due to the period where your payments are only paying interest and not paying down any of the principal on the mortgage.

Who can change to an interest-only mortgage?

The mortgage Charter allows you to switch to a interest-only mortgage for up to six-months without an affordability check or impact on your credit score. Switching to an interest-only mortgage can help you in the short-term with reduced payments, but will ultimately result in the amount of interest you pay over the life of your mortgage being higher.

How will an interest only mortgage impact payments?

Interest only payments result in no capital reduction towards your outstanding mortgage amount. This means that at the end of the six-month period (or sooner if you elect to cancel) you will have increased payments to catch up for the period of missed capital payments. Let’s go over an example to illustrate how your payments will be impacted.

For this example, we will use a mortgage amount of £100,000 as well as a 5% mortgage rate and a 15 year term.

The normal mortgage payment on this loan would be £791 a month. With this payment at the end of 15 years your mortgage would be paid off. If you were to switch to an interest only mortgage payment your monthly payment would drop to £417 a month. This relates to the interest on the £100,000 loan. At the end of the six-months there would still be £100,000 outstanding since the payments did not go towards capital repayment. This means that there is now only 14.5 years to pay back the £100,000. As a result your new mortgage payment would be £809 a month. At the end of the 14.5 years the full £100,000 would be repaid.

What happens at the end of an interest only mortgage?

Once the term of an interest only mortgage has come to completion, you will be required to pay back the full amount borrowed at the end of your term. This will be the full amount of principal that you borrowed when you entered into the interest free contract. If you do not have the capital to pay back the interest free mortgage you can look to enter into an extension on your mortgage term or remortgage.

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