How repayment and interest-only mortgages work, a worked comparison of costs, the lender rules for interest-only, part-and-part options and what to do if you have no repayment plan.
Every mortgage has to be repaid in the end. The difference between repayment and interest-only mortgages is when and how the money you borrowed gets paid back. That choice makes a big difference to your monthly payment, the total cost and your risk.
Repayment (capital and interest)
Each monthly payment covers the interest plus part of the loan itself. Provided you make every payment, the mortgage is fully repaid by the end of the term. In the early years most of each payment is interest; the share going to capital grows over time.
- Pros: the debt is guaranteed to be gone by the end of the term, and you build equity steadily.
- Cons: higher monthly payments than interest-only.
Interest-only
Your monthly payments cover only the interest. The full loan is still owed at the end of the term, and you must repay it in one go, from savings, investments, an inheritance or by selling the property.
- Pros: much lower monthly payments.
- Cons: the debt does not reduce, so total interest is much higher, and if your repayment plan falls short you could have to sell your home.
A worked comparison
For a £200,000 mortgage over 25 years at 5% a year (interest charged monthly), approximately:
- Repayment: about £1,169 a month; total interest about £151,000 over the term; nothing owed at the end.
- Interest-only: about £833 a month; total interest about £250,000 over the term; and the £200,000 is still owed at the end.
The figures are illustrative and assume the rate stays the same throughout, which in practice it will not.
Who can get interest-only?
Under FCA rules, lenders offering interest-only must check that you have a credible strategy to repay the loan, and check it during the term. In practice lenders often want a large deposit or plenty of equity, a high minimum income, and evidence of the repayment plan. A plan to sell the property itself is accepted by some lenders, usually with substantial equity. Interest-only is also common for buy-to-let mortgages.
Part-and-part
Some lenders let you split a mortgage: part on repayment and part on interest-only. It lowers payments compared with full repayment while still reducing the debt, but you still need a plan for the interest-only part.
If you already have interest-only
- Check the end date and the amount owed on your annual statement.
- Review your repayment plan and get an up-to-date value for any investments meant to repay it.
- Talk to your lender early if there is a shortfall. Options can include switching some or all to repayment, overpaying, or extending the term.
- Get free guidance from MoneyHelper, or advice from a mortgage adviser.
Lenders are expected to contact interest-only customers to discuss their plans. Do not ignore those letters: the earlier you act, the more options you have.
Overpaying a repayment mortgage
Many deals let you overpay up to a limit, often 10% of the balance a year, without an early repayment charge. Overpaying shortens the term or lowers payments, and can save a lot of interest, but check your allowance and keep an emergency fund first.
Frequently asked questions
Can I switch from interest-only to repayment?
Usually, subject to an affordability check, as your payments will rise.
Is interest-only cheaper?
Only month to month. Over the term it costs much more interest, and you still have to repay the loan.
How long should my mortgage term be?
A longer term (30 or 35 years) lowers monthly payments on a repayment mortgage but adds substantially to the total interest, and may run into retirement, which lenders will check. A shorter term costs more each month but clears the debt sooner. Many people choose a longer term for affordability, then overpay when they can.
Sources and further reading
- FCA Handbook: MCOB 11 (responsible lending, including interest-only)
- Bank of England: Bank Rate
- MoneyHelper: mortgages guidance
Facts checked on 20 October 2026. Spotted an error? Tell us and we will correct it.