In short…
With an interest-only loan, you repay only the interest for the whole term, then the capital in a single instalment at maturity. More costly in gross interest than a repayment loan, it offers in return interest that is fully deductible from property income and a capital that stays invested and keeps working. It is the tool of choice for optimised buy-to-let investment by heavily taxed investors. The simulator works out your interest-only monthly payment and the total cost of the loan.
- Lighter monthly payment: you pay only the interest for the whole term of the loan
- Interest deductible from property income, which wipes out part of your rental tax
- Capital preserved and invested, often on a pledged life-insurance contract, working in parallel
Simulate your interest-only loan
The simulator works out the interest-only monthly payment and the total cost. Your data is neither stored nor transmitted.
Interest-only loan simulator
Work out the interest on an interest-only loan, where the capital is repaid in a single instalment at maturity.
Results are provided for purely illustrative and educational purposes, based on the parameters you enter and simplified assumptions (2026 taxation, constant return, excluding inflation). They constitute neither personalised investment advice, nor tax advice, nor an offer to subscribe. Some investments carry a risk of capital loss. Before any decision, speak with an advisor.
Why the gross interest cost of an interest-only loan is misleading
Presented gross, the interest-only loan looks like a loser: because the capital never falls before maturity, interest is charged on the full amount borrowed for the whole term. The interest cost is therefore mechanically higher than on a repayment loan, where the capital — and so the interest base — shrinks month after month. A borrower who stops at that figure will wrongly conclude that interest-only costs more.
That reasoning ignores the two engines that make interest-only an optimisation tool. First, the interest is fully deductible from property income: the higher your marginal tax bracket, the larger the share of that interest the State effectively bears through the property-tax saving. The net cost after tax bears no resemblance to the gross figure displayed.
Second, the capital you do not repay month after month stays invested — typically on a life-insurance contract pledged as security for the loan — and keeps compounding for the whole term. The right indicator is therefore never the interest cost in isolation, but the overall net return of the strategy: interest paid, less the tax saving, less the performance of the capital left invested. It is on that balance that interest-only is judged.
The levers the interest-only loan opens
Tax deductibility, the main engine
The interest on an interest-only loan is fully deductible from your property income. Because the monthly payment contains interest only — and never capital — the deductible share is maximal for the whole term, where a repayment loan sees its deductible interest share melt away year after year. For a heavily taxed investor with property income to wipe out, this mechanism cuts the property tax substantially and radically changes the net cost of the financing.
The preserved capital that keeps working
You do not repay the capital before maturity: it stays available and invested, most often on a life-insurance contract pledged as security for the loan. This capital compounds for the whole term of the credit, creating a double leverage effect — you hold the financed asset while keeping a portfolio that works in parallel. No repayment loan allows this; it consumes your monthly saving solely to extinguish the debt.
Clarity on the final repayment
An interest-only loan only makes sense if the repayment of the capital at maturity is anticipated and secured: dedicated savings, a pledged life-insurance contract, a planned resale. Misused — with no repayment savings built up, or by a lightly taxed borrower who draws no benefit from the deductibility — it becomes a poor calculation, costlier than a repayment loan with no tax offset. It is a strategy tool, not a comfort loan: setting it up belongs to a constructed wealth arrangement.
Worked example — Karim, 52, buy-to-let investor in Aix-en-Provence
Karim, heavily taxed (41% marginal bracket) and already holding property income, finances a €300,000 buy-to-let investment over 15 years at 3.5%. He compares a classic repayment loan and an interest-only loan, with the capital pledged on a life-insurance contract. Here is the simulator’s reading:
| Indicator | Repayment loan | Interest-only | Reading |
|---|---|---|---|
| Monthly payment (ex. insurance) | ≈ €2,145 | ≈ €875 (interest) | lighter cash flow |
| Gross interest cost | ≈ €86,000 | ≈ €157,500 | interest-only costlier gross |
| Tax saving (deductible interest) | ≈ €35,000 | ≈ €64,500 | maximum deduction |
| Interest cost net of tax | ≈ €51,000 | ≈ €93,000 | to weigh against invested capital |
Illustrative figures — rounded for clarity and not contractual. Run the simulator above for your exact numbers.
The gross interest cost of the interest-only loan is almost double that of the repayment loan — and that is exactly the misleading figure. Once deductibility is taken into account, the gap narrows; and above all, Karim’s capital, left invested on his pledged life-insurance contract, compounds for 15 years. If that capital earns more than the net interest surplus, interest-only wins.
Everything rests on two conditions: real property tax to wipe out and a secured repayment capital at maturity. Met, interest-only maximises the leverage effect; absent, it becomes the wrong choice. That is precisely the trade-off an advisor settles before the arrangement.
Costlier in interest, but not costlier overall
Because the capital never falls before maturity, interest is charged on the full amount borrowed for the whole term: the gross interest cost is therefore higher than on a repayment loan. But that gross calculation is misleading for an investor.
First, the interest is fully deductible from property income, which cuts the property tax. Second, the capital not repaid stays invested (often on a pledged life-insurance contract) and works for the whole term. The right indicator is not the interest cost but the overall net return of the strategy.
Who interest-only suits
Interest-only is aimed at investors who already hold capital (pledged as security) and property income to erase for tax, in a high marginal bracket. It maximises leverage and tax optimisation, but assumes you manage the repayment of the capital at maturity well.
Misused — with no repayment savings, or by a lightly taxed borrower — it becomes a poor calculation. Setting it up typically belongs to a wealth strategy built with an advisor.
Interest-only is judged on overall net return, not on interest
This simulator prices your interest-only monthly payment and the gross cost of the loan. The decision is made elsewhere: on the real deductibility against your property income and marginal bracket, on the expected performance of the capital left invested, and on securing the final repayment. The same buy-to-let investment financed as a repayment loan or interest-only produces very different net results.
Balmont Conseil is an independent wealth-management firm, a member of ANACOFI, with no capital ties to any bank. That independence lets us structure the financing — choosing the repayment, interest-only or Lombard route to suit your objective — and select the backing contract in your sole interest. Book a call to model the overall net return of your project.
Frequently asked questions
Does an interest-only loan really cost more?
In gross interest, yes: because the capital is never repaid before maturity, interest is charged on the full amount borrowed for the whole term. But that gross calculation is misleading for an investor. The interest is fully deductible from property income, and the capital not repaid stays invested and compounds. The right indicator is the overall net return of the strategy — interest net of tax against the capital’s performance — not the interest cost in isolation.
Who is the interest-only loan for?
For investors who already hold capital — pledged as security — and property income to erase for tax, with a high marginal bracket. It is on that profile that the deductibility of interest and the preservation of invested capital deliver their full effect. Conversely, for a lightly taxed borrower or one with no repayment savings built up, interest-only becomes a poor calculation: it costs more with no offset.
Why pledge a life-insurance contract as security?
The capital you do not repay month after month must serve to settle the loan at maturity. Placing it on a life-insurance contract pledged in the bank’s favour meets two aims: securing that final repayment while letting the capital compound for the whole term of the loan. The contract works alongside the financed investment, creating the leverage effect specific to interest-only. It is the classic arrangement, but its calibration warrants advice.
What happens at the loan’s maturity?
The borrowed capital is repaid in a single instalment, from the dedicated savings — often the pledged life-insurance contract — or from a planned resale. This is the central point of vigilance with interest-only: that repayment must be anticipated and secured from the outset. A well-built arrangement precisely plans the source of the final repayment; an improvised one risks having to sell in a hurry at maturity.
Results are provided for purely illustrative and educational purposes, based on the parameters you enter and simplified assumptions (2026 taxation, constant return, excluding inflation). They constitute neither personalised investment advice, nor tax advice, nor an offer to subscribe. Some investments carry a risk of capital loss. Before any decision, speak with an advisor.