Interest-Only Buy-to-Let: The Payment, the Yield and the Cover Ratio

Interest-only keeps the monthly bill low by leaving the loan untouched. This guide shows the simple payment maths and the cover ratio lenders watch.

What is the Interest-Only Buy-to-Let Mortgage Calculator?

Interest-only is the most common structure for buy-to-let because the loan balance stays the same and is repaid when the property is sold or refinanced, which keeps the monthly bill low and the cash flow high. The payment is simply the loan times the annual rate divided by 12, and the interest cover ratio is the monthly rent divided by that payment. This calculator also shows the gross yield, and the balance that remains owing at the end, which is the full loan. Interest-only is cheaper per month than repayment but the total interest over a full term is higher, since nothing is ever repaid along the way.

How to use it

Enter the property price and your deposit to get the loan and loan-to-value.
Enter the interest rate and the expected monthly rent.
Click Calculate Interest-Only Payment to see the monthly interest, annual interest, yield and cover ratio.

Worked example

A £220,000 property with a £55,000 deposit gives a £165,000 loan at 75% loan-to-value. At 5.25% the interest-only payment is about £722 a month, and £1,100 of rent gives a 6.00% gross yield and an interest cover ratio of about 1.52x.

How is an interest-only payment calculated?

Loan times annual rate divided by 12. £165,000 at 5.25% is £8,662.50 a year, or about £722 a month. The balance does not fall while you pay interest only, so the full £165,000 is still owing at the end.

Frequently asked questions

What is a good interest cover ratio?

Lenders set their own minimums, often around 1.25x to 1.45x after a stress test at a higher rate. A higher ratio means more headroom if rates rise or rent falls.

Do I ever repay the loan itself?

Yes, eventually. The loan is repaid when you sell the property, remortgage onto a repayment deal, or pay it off from other funds.

Try the Interest-Only Buy-to-Let Mortgage Calculator free · All guides