Comparison · 2025
Repayment vs Interest-Only Mortgage UK
UK mortgages come in two main repayment structures: repayment (interest + capital each month) and interest-only(interest only; capital paid at end). They have dramatically different cash-flow and total-cost implications. Here\'s when each makes sense.
At a Glance
| Feature | Repayment | Interest-Only |
|---|---|---|
| Monthly payment | Higher (interest + capital) | Lower (interest only) |
| Capital at end | £0 (fully repaid) | Full original loan |
| Total interest paid | Lower | Much higher |
| Equity built each month | Yes | Only through price growth |
| Residential availability | Universal | Very rare |
| BTL availability | Available | ~85% of BTL |
| Repayment vehicle required | No | Yes (savings, sale, etc.) |
| FCA approval | Standard | Strict (residential) |
Worked Examples: £200,000 Mortgage, 25 Years, 4.5%
Repayment
£1,112 / mo
- Total paid over 25 years: £333,587
- Total interest: £133,587
- Capital at end: £0 (you own it)
Calculators for this topic
Mortgage Affordability Calculator
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Stamp Duty Calculator
Calculate Stamp Duty Land Tax (SDLT) for your property purchase in England.
Remortgage Calculator
Compare your current mortgage deal with a new rate to see monthly savings, total interest saved, and whether remortgaging makes sense.
Buy-to-Let Calculator
Analyse the profitability of a buy-to-let investment including tax and costs.
Interest-Only
£750 / mo
- Total paid over 25 years: £225,000 + £200k capital
- Total interest: £225,000
- Capital at end: £200,000 (must repay)
Interest-only saves £362/month in cash flow, but you pay £91,413 more in interest over 25 years AND still owe £200,000 at the end. Only works if your repayment vehicle (savings, sale of property) covers the capital.
When Repayment Wins
- Residential home buyers — almost universally the right choice
- First-time buyers — builds equity, no repayment vehicle needed
- Long-term homeowners — debt-free by retirement is the goal
- Lower-income borrowers — guaranteed path to homeownership
- Risk-averse borrowers — no need to manage a separate repayment plan
When Interest-Only Wins
- Buy-to-let landlords — keeps rental yields positive; sell or remortgage at end
- High-net-worth individuals — can invest the capital saving more profitably than the mortgage rate
- Property developers — need cashflow during build / refurb
- Variable-income earners — flexibility on capital repayment timing
- Bridging mortgages — short-term while between properties
Critical: You MUST have a credible repayment vehicle. Selling the property is risky (price could fall). Pure investment-based repayment vehicles are also risky. Bank statements, ISA/SIPP balances, business sale plans — lenders scrutinise heavily.
FAQs
Can I get an interest-only mortgage for my home?
Almost no — UK lenders rarely offer interest-only for residential mortgages since the 2008 regulatory crackdown. Where available, you need £200,000+ income, £300,000+ equity, and a credible "repayment vehicle" (savings, investments, second home). Most homeowners use repayment.
Why are 85% of buy-to-let mortgages interest-only?
Landlords typically plan to sell the property or remortgage at the end of the term, using the property's value as the «repayment vehicle». Interest-only keeps monthly cash flow positive (rent covers interest comfortably) while letting capital appreciation provide returns.
Does interest-only mean I pay less in total?
No — quite the opposite. Over 25 years, an interest-only mortgage at the same rate pays MUCH more interest because the capital never decreases. £200,000 at 4.5% interest-only = £225,000 total interest over 25 years; repayment = ~£133,500. But monthly payments are lower on interest-only.
Can I switch from interest-only to repayment?
Yes — most lenders allow switching at renewal or even mid-term. Monthly payments increase but you start building equity. Conversely, switching from repayment to interest-only is harder due to FCA rules. Always check with your lender or broker before remortgage.
What is part-and-part?
A hybrid where part of the mortgage is interest-only and part is repayment. Reduces monthly payment vs full repayment but still builds some equity. Less common than pure interest-only or full repayment.
Mortgage Calculators & Guides
Disclaimer: Mortgage choice is a significant financial decision. Always use a regulated mortgage broker. Interest-only mortgages have strict eligibility criteria and require credible repayment vehicles.