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    By Rhys Hedges · Published 7 November 2026

    Interest-Only vs Repayment Mortgage: Which Should You Choose?

    Homebuyer comparing two mortgage repayment options

    For most people buying a home to live in, a repayment mortgage is the right choice. Each monthly payment covers interest and part of the loan, so the debt is cleared by the end of the term. An interest-only mortgage has lower monthly payments, but you still owe the whole loan at the end, and lenders now offer these mainly in special circumstances such as buy-to-let.

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    Key points

    • Repayment: you pay interest plus some of the capital every month, and the mortgage is fully repaid at the end of the term, typically 25 years, according to MoneyHelper.
    • Interest-only: you pay only the interest, so the full amount borrowed is still due at the end. You need a credible plan to repay it.
    • Cost: interest-only is cheaper each month but costs far more in interest over the full term.
    • Who gets which: residential interest-only deals need a large deposit or equity and often a high income. Most buy-to-let mortgages are interest-only.
    • Check first: run your own figures through a mortgage calculator before you speak to a broker.

    Table of Contents

    What is the difference between interest-only and repayment mortgages?

    With a repayment mortgage, you pay back capital and interest each month. The balance falls over time and reaches zero at the end of the term. MoneyHelper describes the standard term as usually 25 years.

    With an interest-only mortgage, your payment covers the interest charged and nothing else. The amount you borrowed does not shrink. At the end of the term, the whole loan falls due in one go, and you must have the money ready.

    A part-and-part arrangement also exists. Part of the loan is on repayment and part is interest-only. It is less common, and the lender will still want a clear plan for the interest-only portion.

    How do monthly payments and the balance change under each type?

    The two behave very differently once you look at the balance year by year.

    Repayment mortgage. Early on, most of your payment goes on interest, because the balance is at its highest. As the balance falls, the interest charged each month falls too, so more of the same payment goes towards capital. That is why the debt reduces slowly at first and faster later. If your rate is fixed, the payment stays the same through the fixed period. When you remortgage, the payment is recalculated at the new rate over the remaining term.

    Interest-only mortgage. The balance stays flat. If you borrow £200,000, you owe £200,000 in year one and £200,000 in year 25. Your monthly payment only changes if your interest rate changes. Nothing you pay moves you closer to owning the property outright, so your equity grows only if the property’s value rises or you save separately.

    Mortgage balances under repayment and interest-only

    That last point matters. With a repayment mortgage, the plan to clear the debt is built into the payment. With interest-only, the plan is yours to build and fund, on top of the monthly interest.

    How much more does interest-only cost in total?

    The lower monthly payment is the attraction. The cost shows up over the full term. Three published UK examples, all over 25 years, show the pattern:

    Loan and rate Interest-only monthly Repayment monthly Extra interest paid on interest-only Source
    £250,000 at 3% £625 £1,186 £81,700 more in total interest (£187,500 against £105,800) Which?
    £200,000 at 5% £834 £1,170 About £100,000 more in interest (£250,182 against £150,882) MoneySavingExpert
    £100,000 at 3.5% £292 £501 £37,341 more overall (£187,579 against £150,238 total paid) Experian

    Two things stand out. First, interest-only saves several hundred pounds a month on a typical loan. Second, the interest-only borrower still has to find the full capital at the end: £250,000 in the first example, £200,000 in the second. The monthly saving is real, but it is a deferral of the debt, not a reduction of it.

    The interest-only interest total is higher because the loan never reduces. Interest is charged on the full balance for the whole 25 years.

    These examples use fixed rates over the whole term for illustration. In practice, rates change when you remortgage, so your own figures will differ. You can test your own loan size, rate and term with the free mortgage calculator.

    How much more does interest-only cost in total?

    Can you get an interest-only mortgage as a homebuyer?

    Sometimes, but not easily. MoneyHelper notes that very few interest-only mortgages are now offered, usually in special circumstances such as buy-to-let or later-life lending. Many people who were given them in the past had no means of paying back the capital.

    Lender criteria are strict. Examples from published lender pages:

    • Income: Nationwide requires a minimum income of £75,000 for a sole applicant, or £100,000 for joint applicants unless one of you earns £75,000. Barclays sets the same thresholds.
    • Loan to value: Barclays’ intermediary criteria allow a maximum LTV of 75% and a maximum term of 25 years, with no extension into retirement.
    • Deposit: MoneySavingExpert says you need at least a 20% deposit, and in some cases nearer 50%. It also says fewer lenders offer interest-only than repayment.
    • Leasehold: Nationwide asks for at least 70 years remaining on the lease, plus an eligible repayment plan. If you are buying a flat, our guide to leasehold costs explains what else to budget for.

    What about first-time buyers?

    Check the lender’s own rules before you plan around it. Virgin Money states that interest-only mortgages are not available for first-time buyers, with a maximum LTV of 75%. Others, such as Barclays, list first-time buyers as eligible, subject to the income and LTV tests. In practice, a first-time buyer with a small deposit will be on a repayment mortgage.

    How do you repay the capital on an interest-only mortgage?

    You must show the lender how you will do it. MoneyHelper lists accepted repayment vehicles: savings accounts or ISAs, pensions, investment bonds, shares, unit trusts, endowment policies, and other properties or assets.

    The same page is clear about what does not count. You cannot rely on a future windfall such as an inheritance or bonus. You also cannot assume property prices will rise enough for you to downsize and still clear the loan.

    Two points follow from that.

    1. The plan is a cost on top of the interest. The lender’s annual statement must carry a prominent reminder that your payments do not include the cost of your repayment strategy. That is a requirement under the FCA Handbook (MCOB 7.5).
    2. Investments can fall short. A plan built on shares or a fund depends on performance. The FCA rules say you should check how any investments are doing.

    What happens if you cannot repay at the end of the term?

    The loan remains yours to repay. The FCA’s guidance on interest-only mortgages states that customers remain responsible for repaying, and that repaying the capital at the end of the term is a contractual requirement. Lenders are not obliged to offer options at maturity, though they should consider options such as switching to capital repayment, extending the term or accepting overpayments.

    A lender may offer an extension, a remortgage or use of equity in the property, but you remain liable for all the capital. Lenders’ own documents say that if the capital cannot be paid, either you or the lender may have to sell the property.

    If you already have an interest-only mortgage and think your plan may fall short, speak to your lender early. MoneyHelper suggests exploring options such as switching to repayment. For personal advice, a qualified mortgage adviser authorised by the FCA is the right person to see.

    Which suits landlords and property investors?

    Buy-to-let is where interest-only is most common. Which? states that the vast majority of buy-to-let mortgages are interest-only, and that borrowers need a plan to pay off the loan or refinance at the end of the term.

    The reasoning is about cash flow. Rent has to cover the mortgage, running costs and voids. A lower monthly payment leaves more margin, and it can make the yield on a deal look stronger. Many landlords plan to sell, or to refinance, at the end of the term.

    The trade-off is the same as for homeowners. You are not building equity through payments, so the outcome depends on the property’s value at the end and on the exit plan. A landlord who values steady debt reduction can choose repayment, or mix the two across a portfolio, for example by putting a lower-yielding property on repayment.

    When you compare deals, run both mortgage types through the same sums: rent, interest cost, bills, management fees and void allowance. Our property calculators include yield, and our guide to HMO versus single let shows how the strategy changes the numbers.

    How do you decide between the two?

    Work through these questions in order.

    1. Is this your home? If you are living in it, with a standard deposit and a standard income, repayment is the usual route and the one lenders will expect to offer.
    2. Can you meet the interest-only criteria? A deposit of 20% or more, a high income and a documented repayment plan are the typical hurdles.
    3. Can you afford the repayment option? Lenders test affordability on your income and outgoings. Our guide to how mortgage affordability is calculated explains what they look at.
    4. Is the saving real? If you choose interest-only for the lower payment but have no separate savings plan, you have only pushed the problem to the end of the term.
    5. What is the exit? Name the asset, the amount and the date. If you cannot, repayment is the safer fit.

    Another route is to take a repayment mortgage and use overpayments when you can. Check your lender’s overpayment allowance first, because early repayment charges can apply during a fixed rate.

    What else should you budget for before you borrow?

    The mortgage payment is only one line. Stamp duty, conveyancing, survey fees, council tax, insurance and maintenance all sit alongside it. Our breakdown of the true cost of buying a house works through the upfront and monthly figures.

    The other half of the sum is the price. A smaller loan costs less whichever mortgage type you pick, so the amount you offer matters as much as the product. Our guide on how to calculate an offer on a house walks through the comparable-evidence approach.

    What do we think about choosing a mortgage type?

    We build Offer Smart for buyers, investors and agents, and the same pattern comes up in all three groups: people focus on the monthly payment and underweight the price they agreed to pay.

    Choosing between interest-only and repayment is a financing decision, and it is only as sound as the loan amount behind it. If the offer is £10,000 too high, you pay interest on that £10,000 for the whole term, whichever mortgage you choose.

    That is why we think the order matters. Settle what the property is realistically worth first, using recent sold prices, especially on the same road. Then size the loan, and then choose the structure with a qualified adviser.

    Offer Smart is a data-led guide to what to offer. It is not a RICS valuation, a survey or financial advice, and it does not replace a mortgage broker. What it does is put comparable evidence, area data and running cost estimates in front of you before you commit, so the mortgage conversation starts from solid numbers.

    Rhys Hedges

    Want the numbers behind the price before you borrow?

    Our full buyer report costs £19.99 one-off. Enter an address or paste a Rightmove or Onthemarket link and you get recent local sales, including the same road, area data, and estimated running costs to take into your mortgage discussion. If you are comparing several homes, the Unlimited Homebuyer Membership is £39.99 per month.

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    The report is a guide to what to offer, not a valuation or financial advice.

    FAQ

    Is interest-only cheaper than repayment?

    It is cheaper each month, but dearer overall. In the Which? example above, £250,000 at 3% over 25 years costs £625 a month on interest-only against £1,186 on repayment. The interest-only borrower pays £81,700 more interest in total and still owes the £250,000.

    Can I switch from interest-only to repayment?

    Often, yes, by asking your lender. The FCA’s guidance lists switching to capital repayment as an option lenders should consider. Your payments will rise because you start paying off capital over the remaining term, and the lender will assess affordability. A mortgage adviser can tell you what is realistic.

    Why are most buy-to-let mortgages interest-only?

    Because landlords often prefer lower monthly payments to protect rental cash flow. Which? states the vast majority are on that basis. Borrowers still need a plan to repay or refinance the loan at the end of the term.

    Can I get an interest-only mortgage with a small deposit?

    Unlikely. Published lender criteria show maximum LTVs of 75%, and MoneySavingExpert says you typically need at least a 20% deposit. Most buyers with smaller deposits use a repayment mortgage.

    Sources

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