Repayment vs Interest Only

There are two fundamental ways to structure your mortgage payments. With a repayment mortgage, each monthly payment covers both the interest and a portion of the capital you borrowed. By the end of the mortgage term, you have paid off everything and own your home outright. With an interest-only mortgage, you only pay the interest each month and the full capital balance remains at the end, needing to be repaid in one lump sum.

How they compare on cost

Interest-only payments are significantly lower month to month. On a £200,000 mortgage at 5%, a repayment mortgage over 25 years would cost around £1,169 per month, while interest only would be £833 per month — a saving of £336. However, at the end of the repayment mortgage you owe nothing, while at the end of the interest-only term you still owe the full £200,000.

The total interest paid over the life of the mortgage is also higher with interest only, because you never reduce the balance the interest is calculated on. Repayment mortgages cost less overall, but the higher monthly payments can limit how much you are able to borrow.

Modern interest-only requirements

Lenders have tightened their criteria for interest-only mortgages considerably since the 2008 financial crisis. Most now require a credible repayment strategy — a clear plan for how you will repay the capital at the end. Acceptable strategies typically include selling the property, using savings or investments, or selling other properties. Simply saying you will remortgage is not usually accepted.

Many lenders also require a lower LTV for interest-only lending, often 75% or below, and may set a minimum loan size or minimum income. Some lenders do not offer interest only at all for residential purchases. For buy-to-let mortgages, interest only is standard, as the assumption is the property will be sold to repay the loan.

Last updated: April 2026