One keeps your monthly payments low; the other actually pays off your home. The gap between them is bigger — and riskier — than the headline payment suggests.
A repayment mortgage is the right choice for most residential buyers: every payment chips away at the balance, so you own the home outright at the end. Interest-only has lower monthly payments but you still owe the entire loan at the end — so it only works if you have a solid plan to repay the capital.
Interest-only usually costs more in total interest, because you’re charged on the full balance for the whole term.
When you take out a mortgage you choose how the monthly payment is structured. With a repayment mortgage each payment covers the interest plus a slice of the capital, so the balance shrinks to zero by the end of the term. With an interest-only mortgage you pay just the interest — the balance never moves, and the full amount is due as a lump sum at the end.
Interest-only buys you a lower monthly payment today in exchange for a large debt you must clear later. That’s the entire decision — everything else is detail.
On interest-only, the balance line stays flat for the whole term. Nothing you pay each month reduces what you owe — only a separate repayment plan does.
Because interest is charged on the full balance for the entire term, an interest-only mortgage typically racks up more total interest than a repayment mortgage, where the balance — and so the interest — falls each year. The lower monthly figure is real, but you pay for it.
Interest-only frees up around £406 a month here — but you still owe the full £225,000 at the end. The question is what you do with that £406: if it’s invested in a pot designed to clear the capital, interest-only can work brilliantly. If it’s spent, you’ve simply deferred a huge bill.
Model repayment and interest-only side by side — monthly cost, total interest, and whether overpaying or investing the difference wins.
With interest-only, your lender will want to see a credible repayment vehicle — a plan for clearing the capital. Common options:
If you have no plan, interest-only is a trap: you reach the end of the term still owing the full amount, and may be forced to sell your home.
Interest-only shifts risk onto your future self. If your repayment plan underperforms — investments fall, house prices stall — you can be left short. Only choose it with a realistic, funded plan.
The monthly payment is lower because you only pay interest, not capital. But it’s not cheaper overall: you still owe the full balance at the end and pay interest on the whole amount the entire term, so total interest is usually higher.
You must repay the original loan amount in a single lump sum — usually from investments, savings, a pension lump sum, or selling the property. With no plan, you risk having to sell your home.
Often yes. Many lenders let you switch all or part of the balance to repayment, though your monthly payment will rise because you start repaying capital. Ask your lender if you’re worried about clearing the balance.
Borrowers with a credible plan to repay the capital — landlords, people expecting a lump sum, or disciplined investors who put the monthly saving into a portfolio designed to clear the loan. For most residential buyers, repayment is simpler and safer.
This article is general information, not financial advice. Mortgage rules, rates and lender criteria change; your own circumstances may differ. For decisions about your mortgage, consider speaking to a qualified, regulated mortgage adviser.