1. What is an Interest Only Mortgage Payment Calculator?

Definition: This calculator computes the monthly interest-only payment for UK mortgages where you only pay the interest each month, not reducing the principal.

Purpose: Helps UK homeowners and buyers understand their monthly interest payments before committing to an interest-only mortgage.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( M \) — Monthly payment (£)
• \( P \) — Loan principal (£)
• \( r \) — Monthly interest rate (annual rate ÷ 12 ÷ 100)

Explanation: The payment is simply the outstanding loan amount multiplied by the monthly interest rate.

3. Importance of Interest-Only Payment Calculation

Details: Understanding interest-only payments helps borrowers assess affordability and plan for eventual repayment of the principal.

4. Using the Calculator

Tips: Enter the loan amount in £ and the annual interest rate in percentage. All values must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between interest-only and repayment mortgages?
A: Interest-only means you pay just the interest monthly and repay the full principal at the end. Repayment mortgages pay both interest and principal each month.

Q2: Is this calculator specific to UK mortgages?
A: Yes, it follows UK mortgage conventions where interest is typically calculated monthly.

Q3: How do I convert annual rate to monthly?
A: Divide the annual rate by 12 (months) and by 100 (to convert from percentage to decimal).

Q4: Does this include any fees or insurance?
A: No, this calculates only the base interest payment. Additional costs may apply.

Q5: What happens at the end of an interest-only term?
A: You must repay the full original loan amount, so you'll need a repayment plan (savings, investments, or selling the property).