1. What is Interest Only Mortgage?

An interest-only mortgage is a type of mortgage where the borrower only pays the interest on the loan for a set period, typically 5-10 years. The principal amount remains unchanged during this period, and at the end, the borrower must repay the full principal amount.

2. How Does the Calculator Work?

The calculator uses the interest-only formula:

Where:

• \( P \) — Principal amount (£)
• \( r \) — Interest rate (decimal)

Explanation: This simple formula calculates the interest payment due each period on an interest-only mortgage, where you only pay the interest without reducing the principal balance.

3. Importance of Interest Calculation

Details: Accurate interest calculation is crucial for budgeting mortgage payments, understanding the true cost of borrowing, and making informed financial decisions about property investments.

4. Using the Calculator

Tips: Enter the principal amount in pounds (£) and the interest rate as a decimal (e.g., 0.05 for 5%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is an interest-only mortgage?
A: An interest-only mortgage allows you to pay only the interest on the loan for a fixed period, after which you must repay the full principal amount.

Q2: Who should consider interest-only mortgages?
A: Typically suitable for investors, those with irregular income, or those who have a solid repayment plan for the principal amount at the end of the term.

Q3: What are the risks of interest-only mortgages?
A: The main risk is not having sufficient funds to repay the principal at the end of the term, which could lead to forced property sale or financial difficulties.

Q4: How do I convert percentage rate to decimal?
A: Divide the percentage by 100 (e.g., 5% becomes 0.05, 3.25% becomes 0.0325).

Q5: Is this calculator specific to UK mortgages?
A: Yes, this calculator follows UK mortgage practices and currency format as recommended by Martin Lewis's financial advice.