# Interest-only vs repayment mortgage — what's the difference?

> Compare · Last reviewed 26 May 2026

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## Quick answer

On a repayment mortgage your monthly payment covers interest and chips away at the capital, so the loan is cleared at the end. On interest-only you only pay the interest each month — the full capital is still owed at the end of the term.

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Repayment is the standard for residential mortgages in the UK. Interest-only is more common in buy-to-let, but is sometimes available for residential borrowers with a credible repayment strategy. The choice changes monthly affordability and the total amount you pay.

## Interest-only mortgage vs Repayment mortgage

| Criterion | Interest-only mortgage | Repayment mortgage |
| --- | --- | --- |
| Monthly payment | Lower (just interest) | Higher (interest + capital) |
| Balance at end of term | Full original loan still owed | Zero (loan paid off) |
| Total interest paid | Higher (capital doesn't reduce) | Lower (capital shrinks each month) |
| Repayment vehicle required | Yes — must be agreed at the start (ISA, pension lump sum, sale of property, savings) | Not required — repayment is built in |
| Typical use | Buy-to-let, some high-net-worth lending | Standard residential mortgage |
| FCA affordability rules | Stricter — credible repayment plan must be evidenced | Standard MMR/affordability checks |

## When Interest-only mortgage suits

- You're a buy-to-let landlord using rental income to service interest
- You have a credible repayment vehicle and want lower monthly outgoings
- Your income is variable and you want minimum required payments
- You expect to sell the property to clear the balance

## When Repayment mortgage suits

- You want certainty of clearing the mortgage by retirement
- You're a typical residential first-time buyer or homeowner
- You prefer paying less interest overall
- You don't have a separate investment plan to repay the capital

## Frequently asked questions

### Can I mix interest-only and repayment?

Yes — some lenders offer 'part-and-part' mortgages where part of the loan is interest-only and the rest is on repayment.

### What happens at the end of an interest-only term if I can't repay?

You'd need to refinance, sell the property, or agree another arrangement with the lender. The FCA has been working with lenders to help borrowers facing maturity shortfalls — contact your lender as early as possible.

### Is interest-only cheaper overall?

No — because the capital never reduces, you pay interest on the full balance every month. Total interest paid is usually significantly higher than on a repayment mortgage of the same rate and term.

## Sources

- [MoneyHelper — Interest-only mortgages](https://www.gov.uk/consumer-protection-rights/interest-only-mortgages)
- [GOV.UK — Buying a home: a strategy for the market](https://www.gov.uk/buying-a-home/preparing-to-buy)

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Independent UK money guidance from [Money Guide](https://moneyguide.org.uk). Information only — not regulated financial advice.