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