On a repayment mortgage your monthly payment reduces your balance each month until you own the property outright. On an interest only mortgage your payment covers only the interest — the balance stays the same throughout the term. This guide explains both types, how monthly payments compare, and who can actually get an interest only mortgage in the UK today.
Repayment mortgage: monthly payment covers interest plus part of the loan — balance falls to zero by end of term. Interest only mortgage: monthly payment covers interest only — balance stays the same and must be repaid in full at the end. Monthly payments are lower on interest only, but the total cost over the term is higher and the original loan is still owed at the end.
A repayment mortgage — also called a capital and interest mortgage — is the most common type of residential mortgage in the UK. Each monthly payment is split between paying the interest charged on the outstanding balance and repaying a portion of the original loan.
In the early years of a repayment mortgage, most of each monthly payment goes toward interest rather than reducing the balance. This is because interest is calculated on a larger outstanding balance at the start of the term. As the balance gradually reduces, the interest portion of each payment falls and more of the payment goes toward repaying the loan. By the final payment of the mortgage term, the balance reaches exactly zero and you own the property outright.
On a £200,000 repayment mortgage at 4.5% over 25 years, the monthly payment is approximately £1,110. In month one, approximately £750 of that covers interest and £360 reduces the balance. In the final years, the proportions reverse significantly — much more of the payment reduces the balance as the outstanding debt is small.
An interest only mortgage is a mortgage where the monthly payment covers only the interest charged on the outstanding loan balance. The loan balance itself does not reduce during the mortgage term — you owe exactly the same amount at the end of the term as you borrowed at the start.
At the end of an interest only mortgage term the full original loan is still outstanding and must be repaid in full. If you cannot repay it, the lender can take possession of the property. Most borrowers on interest only either plan to sell the property and use the proceeds to clear the loan, have an investment or savings vehicle intended to cover the balance, or remortgage before the end of the term. Having a credible repayment plan is a requirement most lenders impose before granting interest only on a residential mortgage.
On the same £200,000 mortgage at 4.5%, an interest only mortgage costs approximately £750 per month — versus £1,110 on repayment. That is £360 per month cheaper in the short term. However, at the end of a 25-year term the repayment mortgage holder owns their home outright. The interest only holder still owes £200,000.
Interest only is not cheaper overall — it is cheaper monthly. Over the full term, the total interest paid on an interest only mortgage is significantly higher because you continue paying interest on the full original balance throughout, rather than on a declining balance.
These figures use a £200,000 mortgage at 4.5% over 25 years to illustrate the practical difference between the two mortgage types.
| Repayment mortgage | Interest only mortgage | |
|---|---|---|
| Monthly payment (£200k, 4.5%, 25yr) | ~£1,110/month | ~£750/month |
| Balance after 10 years | ~£156,000 | £200,000 (unchanged) |
| Balance at end of term | £0 — owned outright | £200,000 still owed |
| Total interest paid | ~£133,000 | ~£225,000 (higher) |
| Builds equity | Yes — each payment | No — only through price growth |
| Risk at end of term | None — mortgage paid off | Must repay full loan balance |
| Typical use | Residential — almost all | Buy-to-let, some residential |
Figures are illustrative only based on a fixed rate of 4.5% throughout the full 25-year term. Actual payments will vary as rates change at remortgage. Use our free mortgage calculator for figures based on your specific loan and rate.
Interest only residential mortgages are far less widely available than they were before 2008. Stricter lending rules now require borrowers to demonstrate a credible plan to repay the capital at the end of the term.
| Buyer type | Interest only availability | Typical requirements |
|---|---|---|
| First time buyer | Rarely available | Almost all FTB mortgages are repayment only. Very few lenders consider interest only for first time buyers. |
| Home mover / owner-occupier | Limited — specialist lenders | Typically requires 25% to 50% equity, a credible repayment vehicle, and income above lender thresholds. |
| High net worth / older borrower | Available from some lenders | Retirement interest only (RIO) mortgages exist for older borrowers with no fixed end date. |
| Buy-to-let investor | Widely available | Most BTL mortgages are arranged on interest only. The property sale at end of term repays the loan. |
Most buy-to-let mortgages are arranged on an interest only basis because landlords prioritise maximising monthly cash flow from rental income. The repayment plan is typically the eventual sale of the property. The rental income covers the interest-only payment and generates a profit; the capital growth in property value builds equity over time. Because the loan balance does not reduce, the landlord retains the same borrowing against the property rather than gradually paying it down.
Call 01422 354011 or use the form below. As a whole-of-market mortgage broker, we compare repayment and interest only options across all lenders relevant to your circumstances.
Get Mortgage AdviceAs a whole-of-market mortgage broker, we compare repayment and interest only options across all relevant lenders and advise on which type is most appropriate for your circumstances — whether you are buying your first home, moving, or investing in buy-to-let.
Initial discussion free. A broker fee of £299 is payable if you choose to proceed following a formal mortgage offer. This fee is non-refundable once charged. We may also receive commission from the lender. Your home may be repossessed if you do not keep up repayments on your mortgage.
Get Mortgage AdviceGeneral information: This article is for general guidance only and does not constitute regulated mortgage advice. Monthly payment figures shown are illustrative and based on a fixed rate of 4.5% throughout a 25-year term. Actual payments vary with rate changes at remortgage.
Regulatory status: Woodhall Mortgages is authorised and regulated by the Financial Conduct Authority (FRN 762513). Whole-of-market mortgage broker. Not all lenders or products may be included.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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