Updated 2026-05-14 · Mortgage · Educational use only ·

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Interest Only vs Repayment Calculator

Monthly cost and end-of-term balance comparison.

Compare interest-only vs repayment mortgage costs side by side. See monthly payment difference and outstanding balance at end of term.

What this tool does

This calculator models the monthly payment difference between interest-only and repayment mortgage structures over a fixed term. It takes your loan amount, annual interest rate, and term length, then calculates the monthly payment required under each approach and estimates what balance remains owing at the end of the term under an interest-only structure. The repayment option gradually reduces the principal through each payment, while interest-only payments cover only accrued interest, leaving the full original amount due at maturity. The monthly payment difference between the two types is typically the largest driver of the comparison. This tool illustrates how these structures behave across common scenarios and is provided for educational purposes to show the mechanics of each approach. The calculation does not account for rate changes, fees, payment holidays, or arrangements for repaying the outstanding balance at term end.

Quick answer: with the default values, the result is $335.85 (Repayment Extra Per Month). Adjust the values below for your own figures.

Enter Values

Currency($)

Loan Amount($)

Annual Rate

Term(years)

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Formula Used

Interest Only = P \times r /12, Repayment = \frac{P \times r /12 \times ( 1 + r /12 ) ^{n}}{( 1 + r /12 ) ^{n} - 1}

P

Principal

r

Annual rate

n

Months

Disclaimer

Results are estimates for educational purposes only. They do not constitute financial advice. Consult a qualified professional before making financial decisions.

200,000 at 5% over 25 years: interest-only payment is 833/month with 200,000 owed at the end. Repayment is 1,169/month with 0 owed at the end. Over 25 years, repayment costs more per month but clears the debt; interest-only is cheaper monthly but leaves the full balance. Interest-only relies on a clear repayment strategy (such as an investment vehicle or property sale) to clear the balance at term end.

Mortgage structure comparison.

A worked example

For a 200,000 loan at 5% over 25 years, the repayment option costs about 335.85 more per month than interest-only, 1,169 a month versus 833. That monthly difference is the headline result; interest-only is cheaper each month but leaves the full 200,000 owed at the end of the term. Adjust any input and the result updates as you type.

What moves the number most

The result responds to Loan Amount, Annual Rate, and Term. Two inputs usually tip the answer one way or the other. Flipping each value past a round threshold shows which input moves the result most.

The formula behind this

Interest-only payment = principal × monthly rate. Repayment payment = standard amortisation formula. Difference is the monthly gap. Everything the calculator does is shown in the formula box below, so you can check the math against your own spreadsheet if you want.

Stress-testing the plan

The same calculation at a rate 2–3 percentage points higher shows how things look if a fix resets to a pricier product at renewal, rather than only at today's rate.

What this doesn't capture

The figure shown reflects the core calculation; additional costs such as arrangement fees, valuation, legal fees, insurance, and any early-repayment charges (where applicable) sit on top and can add materially to the total cost of borrowing. Rates and product terms can also change over the life of the loan, which can shift the picture relative to this fixed-snapshot estimate.

Example Scenario

Borrowing £200,000 at 5% over 25 years results in $335.85.

Inputs

Loan Amount:£200,000

Annual Rate:5%

Term:25 years

Expected Result$335.85

Expected Result breakdown
Interest-Only Monthly	$833.33
Repayment Monthly	$1,169.18
End-of-Term Balance (IO)	$200,000.00
Total Cost Repayment	$350,754.02

This example uses typical values for illustration. Adjust the inputs above to match a specific situation and see how the result changes.

Sources & Methodology

Methodology

Interest-only payment = principal × monthly rate. Repayment payment = standard amortisation formula. Difference is the monthly gap.

References

Frequently Asked Questions

Who uses interest-only?

Traditionally buy-to-let landlords (the rent funds repayment plans). Some owner-occupiers with high irregular income also use IO for flexibility.

Is interest-only riskier?

Depends on the repayment vehicle. If the vehicle is reliable, no. If the end-of-term plan is vague, yes — the full balance comes due.

Part-and-part mortgages?

Common compromise. Part of the loan is interest-only, part is repayment. Lower monthly than full repayment, lower end balance than full IO.

Does IO have tax advantages?

For buy-to-let in some jurisdictions, yes, mortgage interest is deductible, though the rules have tightened recently and vary by jurisdiction.

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