Understanding Interest-Only Mortgages in Timeline Planning

Mortgages: Interest-only
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​Summary

Introduction

Mortgages can significantly affect long-term financial planning, especially when deciding between repayment and interest-only structures.
This article focuses on how to set up and model interest-only mortgages in Timeline Planning. Clear examples are provided to show how payments and outstanding debt evolve over time.

​Setting up interest-only mortgages

Timeline Planning allows users to model interest-only mortgages linked to a property. To set one up, first define the property under Settings → Assets → Non-liquid properties. Select the property type (main home, holiday home, or rental) and enter its market and purchase values.

Under the property details, you can then add a mortgage. For an interest-only mortgage, specify the outstanding balance, interest rate, and remaining term.

Example of interest-only mortgage

John owns a main home with a market value of £270,000 and a purchase value of £250,000. He has £200,000 of outstanding debt on an interest-only mortgage with a 3% rate and 20 years remaining.
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For the first 20 years, John pays only the interest: 3% × £200,000 = £6,000 annually. At the end of year 20, the full £200,000 principal must be repaid in one lump sum.

The chart above illustrates this payment structure with 0% inflation under a Monte Carlo scheme. In Timeline Planning using historical data, cashflow charts are always in real terms, adjusted for inflation to show the actual value of payments over time.

Conclusion

Interest-only mortgages provide lower annual payments but require careful planning for the final repayment of the capital. Timeline Planning helps visualise both the fixed interest payments and the eventual lump sum repayment in real terms. This ensures clients can clearly see the long-term impact on their financial plan and make informed decisions.