Interest-only mortgage
An interest-only mortgage means your monthly payments cover interest but not the capital balance. You need a separate plan to repay the loan.
Last verified: 10/03/2026
Definition
With an interest-only mortgage, monthly payments usually cover only the interest due. The mortgage balance (capital) does not reduce through the monthly payment.
Why it matters
Because the balance does not reduce automatically, you need a separate repayment strategy (for example savings, investments, or sale of the property).
Simple monthly interest estimate
Monthly interest ≈ balance × annual rate ÷ 12
This is a planning estimate; lenders can calculate interest daily with their own rounding rules.
Related terms
- Repayment mortgage
- Amortisation