How much mortgage can you get for £2,000 or £3,000 a month?
What £1,000 to £3,000 a month repays, the income a lender would want for it, and where your deposit fits in.
An interest-only mortgage has the simplest payment of any loan. Each month you pay the interest on what you owe, and nothing else. The amount you borrowed stays the same from the first month to the last, and you have to pay it back in one go at the end of the term.
The formula: amount borrowed × interest rate ÷ 12 = monthly payment.
On £200,000 at 4.5%: £200,000 × 0.045 = £9,000 a year, ÷ 12 = £750 a month.
That is all there is to it. The term does not change the payment, because none of the loan is being repaid. A 15-year and a 30-year interest-only mortgage on the same amount at the same rate cost exactly the same each month.
Monthly payments at a glance
Interest-only payments for common loan sizes. The rates are examples, not quotes, so put your own rate into the interest-only mortgage calculator.
| Amount borrowed | 4% | 4.5% | 5% | 5.5% |
|---|---|---|---|---|
| £100,000 | £333.33 | £375.00 | £416.67 | £458.33 |
| £150,000 | £500.00 | £562.50 | £625.00 | £687.50 |
| £200,000 | £666.67 | £750.00 | £833.33 | £916.67 |
| £250,000 | £833.33 | £937.50 | £1,041.67 | £1,145.83 |
| £300,000 | £1,000.00 | £1,125.00 | £1,250.00 | £1,375.00 |
Interest-only against repayment
The lower payment is the whole appeal. On £200,000 at 4.5% over 25 years, a repayment mortgage costs £1,111.66 a month against £750 on interest only. That is £361.66 a month less.
The catch is what you have at the end.
| £200,000 at 4.5% over 25 years | Interest only | Repayment |
|---|---|---|
| Monthly payment | £750.00 | £1,111.66 |
| Interest paid over the term | £225,000 | £133,499 |
| Still owed at the end | £200,000 | £0 |
Interest only costs about £91,500 more in interest, because the balance never comes down, and you still owe the full £200,000 at the end. That is why lenders want to see a believable plan for repaying it before they agree an interest-only loan.
Planning to pay the loan back
The usual plans are savings or investments built up alongside the mortgage, selling the property, or a pension lump sum. If you save monthly, this is roughly what it takes to build £200,000 over 25 years.
| Growth on your savings | Monthly saving needed | Interest only plus saving |
|---|---|---|
| 3% a year | £448.42 | £1,198.42 |
| 4% a year | £389.01 | £1,139.01 |
| 5% a year | £335.85 | £1,085.85 |
Unless your savings grow by more than the mortgage rate, interest only plus a savings plan costs more each month than a repayment mortgage, and investment growth is never guaranteed. The calculator shows the savings plan for your own figures.
Retirement interest-only mortgages
A retirement interest-only mortgage works the same way month to month: you pay the interest and nothing more. The difference is that there is usually no fixed end date. The loan is normally repaid when the home is sold, which tends to be after the last borrower dies or moves into long-term care. Because the payment is still interest × rate ÷ 12, the same calculator gives you the monthly cost.
Part and part
Some lenders offer part interest-only and part repayment. The payment is the interest-only cost on one part plus the repayment cost on the other. For example, £100,000 on each at 4.5% over 25 years is £375.00 plus £555.83, so £930.83 a month, with £100,000 left to clear at the end.
To see how your balance and equity change over time, try the loan to value and equity calculator. To compare with a full repayment loan, use the mortgage repayment calculator.
This is general information, not financial or tax advice.
It explains published rules and figures. Your own position depends on your full circumstances,
so speak to a qualified adviser before acting on it.