Interest-Only Buy-to-Let Mortgage Calculator: Payments, Pros & Risks

The vast majority of buy-to-let landlords in the UK choose interest-only mortgages — and for good reason. By paying only the interest each month and leaving the loan balance untouched, you keep your monthly outgoings as low as possible and maximise the cash flow from your rental income. For a portfolio landlord juggling multiple properties, that difference between interest-only and repayment can be the margin between a profitable month and a loss-making one.

But interest-only is not without its trade-offs. You build no equity through your mortgage payments, you need a credible repayment strategy for the end of the term, and lenders are increasingly scrutinising how you plan to repay the capital. Understanding exactly what your interest-only payments will be — and how they compare with repayment alternatives — is essential before committing to a mortgage product.

Use our free buy-to-let mortgage calculator to model your interest-only payments instantly. This guide explains how interest-only BTL mortgages work, when they make sense, the risks involved, and how to plan your exit strategy — everything you need to make an informed decision in 2026.

How Interest-Only Buy-to-Let Mortgages Work

An interest-only mortgage is exactly what it sounds like: each month, you pay only the interest accrued on the outstanding loan balance. Unlike a repayment mortgage, where each payment chips away at both the interest and the capital, an interest-only mortgage leaves the original loan amount completely untouched for the entire term.

This means that if you borrow £150,000 on an interest-only basis, you still owe £150,000 at the end of your 25-year term. The monthly payment covers only the cost of borrowing that money — not the money itself. The formula is straightforward:

Because the loan balance never changes, your monthly payment stays the same for the duration of any fixed-rate period. This makes budgeting and cash flow forecasting considerably simpler than with repayment mortgages, where the interest-to-capital ratio shifts over time.

At the end of the mortgage term — typically 25 years — you must repay the full £150,000 in one lump sum. This is where your repayment strategy comes in, which we cover in detail below. Lenders will ask about your repayment strategy at the application stage and may decline you if your plan is not credible.

Interest-Only vs Repayment: Side-by-Side

The difference between interest-only and repayment becomes stark when you see the numbers side by side. The following comparison uses a £200,000 property with a £50,000 deposit (75% LTV), a 5.5% interest rate, and a 25-year term — typical figures for a buy-to-let mortgage in 2026.

The monthly saving of £233.08 on interest-only is significant — it is the difference between a profitable rental and a loss-making one in this scenario. However, you pay £80,076 more in total interest over 25 years because the loan balance never decreases. The critical question is what you do with that monthly saving: if it sits in a current account earning nothing, interest-only is simply more expensive in the long run.

For a deeper dive into repayment mortgage costs and amortisation schedules, see our repayment mortgage calculator guide. For broader guidance on BTL mortgage calculations, start with our comprehensive buy-to-let mortgage calculator guide.

When Interest-Only Makes Sense

Interest-only is not universally better or worse than repayment — it depends on your strategy, your tax position, and your plans for the property. Here are the scenarios where interest-only is typically the right choice:

• Maximising monthly cash flow. You need the property to generate positive cash flow from day one, and the repayment option would push you into negative territory after expenses, void periods, and maintenance costs.
• Property in a high-growth area. You are banking on capital appreciation to build equity rather than mortgage repayments. If the property value rises from £200,000 to £300,000 over 15 years, you have £150,000 of equity without paying down a penny of the loan.
• Planning to sell within 10-15 years. If you intend to sell the property before the mortgage term ends, you repay the loan from the sale proceeds. Interest-only keeps your costs minimal until that point.
• You have a separate repayment vehicle. You are investing the monthly savings into an ISA, pension, or other investment that you expect to grow enough to repay the loan at maturity. This requires discipline and realistic return assumptions.
• Portfolio landlord reinvesting profits. You use the cash flow surplus from interest-only mortgages to fund deposits on additional properties, growing your portfolio faster than you could with repayment mortgages draining your income.
• Higher-rate taxpayer maximising tax relief. Under Section 24, mortgage interest generates a 20% tax credit regardless of your tax bracket. For higher-rate taxpayers, the effective cost of interest is higher — but keeping payments low with interest-only preserves cash for other tax-efficient investments.

If none of these scenarios apply to you — for example, if you want the security of owning the property outright at retirement — a repayment mortgage may be the better option despite the higher monthly cost.

The Risks of Interest-Only

Interest-only mortgages carry specific risks that you must understand and plan for. These are not theoretical concerns — they have caught out thousands of landlords who failed to plan their exit strategy.

• No equity built through payments. Every penny of your monthly payment goes to the lender as interest. After 25 years of payments totalling over £200,000, you own exactly the same percentage of the property as you did on day one. Your only equity growth comes from property price appreciation and your original deposit.
• Negative equity risk. If property values fall, you could owe more than the property is worth. On a repayment mortgage, the declining balance provides a buffer against price drops. On interest-only, a 25% drop in property value on a 75% LTV mortgage puts you in negative equity immediately.
• Remortgage difficulty at end of term. When your 25-year term expires, you must repay the loan in full. If you cannot, you will need to remortgage — but lenders may refuse if you are older (many have maximum age limits of 70-75), if the property value has fallen, or if lending criteria have tightened since you originally borrowed.
• Dependence on property values. Your entire repayment strategy may rely on selling the property for more than you paid. Property markets do not always go up — the 2008 crash saw values drop 15-20% nationally and more in some regions. A forced sale in a downturn could leave you short.
• Limited lender options at older ages. As you approach retirement age, fewer lenders will offer interest-only terms. Some require the mortgage to be fully repaid by age 70 or 75. If you take out a 25-year interest-only mortgage at age 50, you may struggle to remortgage or extend at age 75.
• Stress test failures on remortgage. Lenders stress-test affordability at rates higher than the actual rate (typically 7-8% in 2026). If rental income has not kept pace with inflation, or if the stress test rate has increased, you may fail affordability on a remortgage even if you have never missed a payment.

Repayment Strategies

Every interest-only mortgage needs an end game. Here are the four most common repayment strategies, along with their advantages and drawbacks:

How Interest-Only Affects Your Tax Position

Since April 2020, landlords can no longer deduct mortgage interest as an expense against rental income. Instead, under Section 24, you receive a 20% tax credit on your mortgage interest payments. This change fundamentally altered the tax arithmetic of interest-only vs repayment mortgages.

On an interest-only mortgage, your annual interest payment is higher than on a repayment mortgage (because the loan balance never decreases). This means a larger 20% tax credit — but it also means a higher tax bill if you are a higher-rate taxpayer, because Section 24 effectively taxes you on income you have already spent on interest.

Tax Impact: Basic vs Higher-Rate Taxpayer

The following table shows the annual tax impact for a £150,000 interest-only loan at 5.5%, assuming annual rental income of £11,400 (£950/month) and no other deductible expenses for simplicity:

For basic-rate taxpayers, the impact of Section 24 is neutral — you pay 20% tax and receive a 20% credit, so the net effect is the same as the old system. The choice between interest-only and repayment should be driven by cash flow and strategy, not tax efficiency. For higher-rate taxpayers, the decision is more complex and warrants professional advice.

Calculate Your Interest-Only Payments Now

Our buy-to-let mortgage calculator lets you model interest-only payments in seconds. Here is how to use it:

1. Navigate to the mortgage calculator and select Interest-Only as the mortgage type.
2. Enter your property value and deposit amount (or adjust the LTV slider). The calculator will compute your loan amount automatically.
3. Set your expected interest rate. As of early 2026, competitive 5-year fixed BTL rates range from 4.5% to 6.0% depending on your LTV and lender.
4. Choose your mortgage term (typically 25 years for buy-to-let).
5. Enter your expected monthly rent to see your projected cash flow after mortgage payments.
6. Toggle between interest-only and repayment to compare the two options side by side.

The calculator shows your monthly payment, total cost over the full term, total interest paid, and monthly cash flow. You can adjust any input to model different scenarios — higher deposits, different rates, shorter terms — to find the structure that works best for your investment.

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