1. What is Buy-to-Let Interest Only Mortgage?

A Buy-to-Let Interest Only mortgage is a type of loan where the borrower only pays the interest each month, not reducing the principal. The full loan amount is repaid at the end of the term, typically through property sale or refinancing.

2. How Does the Calculator Work?

The calculator uses the simple interest only formula:

Where:

• \( Loan \) — The principal loan amount in GBP
• \( Rate \) — Annual interest rate in decimal form
• \( 12 \) — Number of months in a year

Explanation: The formula calculates the monthly interest payment by converting the annual rate to a monthly rate and applying it to the loan amount.

3. Importance of Interest Only Calculation

Details: Understanding your monthly interest payment helps landlords budget for property expenses and assess rental yield requirements to cover mortgage costs.

4. Using the Calculator

Tips: Enter the loan amount in GBP and the interest rate as a percentage (e.g., 5.25%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between interest-only and repayment mortgages?
A: Interest-only requires lower monthly payments (interest only) but the full loan remains. Repayment mortgages pay down both interest and principal.

Q2: How do lenders assess affordability for BTL mortgages?
A: Lenders typically require rental income to cover 125-145% of the interest payment, depending on the lender and tax status.

Q3: What happens at the end of an interest-only term?
A: You must repay the full loan amount, usually through property sale, refinancing, or other repayment vehicles.

Q4: Are interest rates higher for BTL mortgages?
A: Typically yes, as BTL mortgages are considered higher risk than residential mortgages.

Q5: Can I switch from interest-only to repayment?
A: Many lenders allow switching, but you'll need to pass affordability checks for the higher repayment amount.