Interest Only vs Repayment Calculator

Interest-only lowers the monthly payment substantially because none of it reduces the debt. The balance at the end of the term is exactly what you borrowed, and it has to be repaid from somewhere — a sale, an investment, or a refinance that will be assessed at whatever age and income you have then.

The comparison that matters is not the monthly figure but the total: interest paid across the term plus the capital still outstanding.

The comparison

Interest-only payment = balance × monthly rate, and the balance never falls. Total cost is that payment across the term plus the original capital, which is still owed. Repayment total is simply the payment across the term, at the end of which nothing is owed.

Worked example

On 250,000 at 6.5% over 25 years, interest-only costs 1,354 a month against 1,688 on repayment — 334 less. But interest-only pays 406,250 of interest and still owes 250,000, a total of 656,250, while repayment costs 506,400 and clears the debt. Interest-only costs about 150,000 more.

The repayment plan is the whole question

Interest-only is defensible where there is a genuine, evidenced plan to repay the capital — a property being sold, an investment maturing, or a business exit. Where the plan is that something will turn up, the term ends with a demand for the full balance and few options.

Frequently asked questions