The difference in one sentence
On a repayment mortgage, each payment chips away at the loan as well as paying interest, so the balance reaches zero at the end of the term. On an interest-only mortgage, each payment covers just the interest — the balance stays the same unless you have a separate plan to repay it.
The numbers on £240,000 at 5% over 25 years
| Repayment | Interest-only | |
|---|---|---|
| Monthly payment | £1,403 | £1,000 |
| Total paid over term | £420,905 | £300,000 (interest) |
| Balance at end of term | £0 | £240,000 still owed |
| What you must do at the end | Nothing — it’s paid off | Repay the £240,000 capital |
Illustrative only — 5% p.a. constant over the full 25-year term.
The interest-only payment is lower by about £403 a month — but that money has to come from somewhere. If you invest it and the investments grow, you may end up with a lump sum to repay the capital; if they do not, you could face a shortfall at the worst possible time.
Who interest-only is aimed at
Interest-only mortgages are common for buy-to-let, where the rent typically covers the interest and the landlord expects the property itself to have grown in value by the time it is sold. For owner-occupiers, interest-only is usually only offered with a credible repayment vehicle — such as an ISA, pension or other investment plan — and lenders scrutinise this carefully. It is not the default choice for most homebuyers.
The risks of interest-only
- Capital never falls — if your investment plan underperforms, the loan is still fully outstanding.
- Rate rises hit the whole balance — interest is charged on the full loan for the entire term.
- End-of-term pressure — you must repay the capital, often by selling or remortgaging, when your income may have changed.
There is also a middle option: part-and-part mortgages, where part of the loan is on repayment and part on interest-only. They reduce the payment while still paying down some capital.
What about fixed vs variable on top?
Repayment or interest-only is about how the loan is repaid. Fixed or variable is about what happens to the rate. You can have a repayment mortgage on a fixed or variable rate — see our fixed vs variable guide for that comparison.
Frequently asked questions
Is an interest-only mortgage ever a good idea?
For most owner-occupiers, no — a repayment mortgage is the safer default. Interest-only can suit buy-to-let investors and a minority of borrowers with a disciplined, well-funded repayment vehicle, but it carries the risk of a capital shortfall at the end of the term.
Can I switch from interest-only to repayment?
Yes. You can usually ask your lender to switch to repayment at any time, and most lenders will let you do so without a new application if the loan is otherwise unchanged. Your monthly payment will go up.
Are interest-only mortgages available in the UK?
Yes, but affordability rules are stricter. Lenders generally require evidence of a repayment plan, and many interest-only products are aimed at buy-to-let rather than owner-occupiers.
What is a part-and-part mortgage?
A mortgage where part of the loan is on a repayment basis and part on interest-only. It lowers the payment versus full repayment while still reducing the balance over time. Some lenders offer it for owner-occupiers.
Educational guide only — not financial advice. Compare both types in the calculator below and check the latest lender guidance before deciding.