IN PLAIN ENGLISH
How much of the next year's payments is the lender's charge rather than paying the debt down.
FULL DEFINITION
The interest a mortgage adds up to over the next twelve payments, at the rate you entered.
EXAMPLE
£150,000 at 4.5% over 25 years, repayment: about £6,682 in interest over the next 12 months. Interest-only: 150,000 × 4.5% = £6,750.
HOW IT'S CALCULATED
Interest-only: balance × rate ÷ 100. Repayment: the interest in each of the next twelve monthly payments, adding up as the balance falls (each month's interest = remaining balance × rate ÷ 100 ÷ 12, the rest of the payment reduces the balance), so it is a little lower than balance × rate. Assumes a fixed rate and ignores fees and tax.
Educational content only. It is not personal financial advice.