Comparison · Mortgages · 2026
Interest-Only vs Repayment Mortgage 2026: Which Costs Less?
An interest-only mortgage keeps monthly payments low by covering only the interest, but the debt never shrinks and the full amount is still owed at the end of the term. A repayment mortgage costs more each month because it also chips away at the capital, but the loan is fully cleared by the end. For 2026/27 the question is whether lower payments now are worth a much larger lifetime cost and the risk of still owing the whole balance later. This comparison works through the numbers and the risks.
TL;DR - 30-Second Summary
- - Interest-only: lower monthly payments, but the debt never reduces
- - Repayment: higher payments that clear the loan by the end
- - Lifetime cost: repayment is almost always cheaper overall
- - Interest-only needs a plan to repay the capital, or you risk a shortfall
Side by Side
| Feature | Interest-Only | Repayment |
|---|---|---|
| Monthly payment | Lower | Higher |
| Balance over time | Stays the same | Falls to zero |
| Owe at end of term | Full amount borrowed | Nothing |
| Total interest paid | Higher | Lower |
| Repayment plan needed | Yes, evidenced | No |
| Common use | Buy-to-let, specific cases | Most residential buyers |
Worked Example: £200,000 over 25 Years
Take a £200,000 mortgage over 25 years at an illustrative 5% rate. The interest-only payment is lower, but the £200,000 is still owed at the end. The repayment version costs more each month but ends with nothing owed.
| Measure | Interest-Only | Repayment |
|---|---|---|
| Approx monthly payment | ~£833 | ~£1,169 |
| Balance after 25 years | £200,000 still owed | £0 |
| Approx total interest | ~£250,000 | ~£150,800 |
| Plus capital to find at end | £200,000 | None |
The interest-only payment is around £336 a month lower, but you pay interest on the full £200,000 every year and still owe the whole £200,000 at the end. Across the term the repayment mortgage costs far less in interest and leaves you owning the home outright. Figures are illustrative; model your own with the mortgage calculator.
The Risk Angle
The big risk with interest-only is the capital. Because the balance never falls, you need a credible plan, such as investments, the sale of the property or downsizing, to repay it at the end. If that plan underperforms, you can face a large shortfall with little time to fix it. Lenders therefore require evidence of a repayment strategy and often lower loan-to-value limits.
A repayment mortgage removes this risk entirely: as long as you keep up payments, the debt is guaranteed to reach zero. That certainty is why it is the standard choice for owner-occupiers.
Who Should Choose What
- - You want to own your home outright by the end
- - You want the lowest lifetime cost
- - You prefer certainty that the debt will clear
- - You are a typical residential buyer
- - You are a buy-to-let investor
- - You have a solid, evidenced plan to repay capital
- - You need lower payments for genuine cash-flow reasons
- - You expect a reliable future lump sum
Verdict
For most homeowners a repayment mortgage is the clear winner: it costs less over the term, clears the debt with certainty, and leaves you owning your home. Interest-only has its place, mainly for buy-to-let landlords and borrowers with a robust, evidenced plan to repay the capital, but the lower monthly payment hides a higher lifetime cost and the risk of still owing the full balance at the end. If you do take interest-only, treat the capital repayment plan as seriously as the mortgage itself, and review it regularly.