Interest-only vs repayment mortgage
On an interest-only mortgage only interest is paid each month, so the balance never falls; a repayment mortgage also clears capital by the end of the term. Borrowing £220,000, this example's estimated interest-only payment is £825.00 a month against £1,222.83 for repayment, for 2026/27.
Where does the monthly gap come from?
An interest-only payment is simply the loan multiplied by the monthly interest rate. Nothing is paid off the balance, so the payment stays the same and the debt does not move. A repayment payment adds a capital slice on top, sized so the loan clears exactly at the end of the term. That extra slice is the whole difference between the two figures above.
The difficulty is the end of the term. After the full term of interest-only payments, the original loan is still owed in full. You need a separate pot, an investment, or a sale to cover it. A repayment mortgage costs more each month but leaves nothing to find at the end, which is why lenders and regulators treat interest-only with more caution.
What would I pay in a worked example?
Borrow £220,000 at 4.50% over 25 years. Interest-only costs £825.00 a month and, across the term, £247,500 in interest, with the full £220,000 still owed at the end. Repayment costs £1,222.83 a month but pays £146,849 in interest and clears the debt, saving £100,651 in interest overall.
Common questions
What is the difference between interest-only and repayment?
On interest-only you pay only the monthly interest, so the balance never falls and the full loan is still owed at the end. On a repayment mortgage each payment also clears a slice of capital, so the loan reaches zero by the end of the term. On the £220,000 example the interest-only payment is £825.00 a month against £1,222.83 on repayment.
How much would I still owe at the end?
The whole capital. On an interest-only loan of £220,000 you would still owe £220,000 at the end of the term, because nothing has been paid off the balance. You need a separate plan, such as savings, investments or a sale, to clear it.
Why is interest-only cheaper each month?
Because you are not repaying any capital. The gap here is about £397.83 a month, which is exactly the capital slice a repayment mortgage builds in. The monthly cost is lower, but no equity is built from the payments.
Who can get an interest-only mortgage?
Lenders apply strict rules. You usually need a credible repayment plan for the capital, a good level of equity, and often a higher income. Interest-only is more common on buy-to-let, where rent covers the interest and the property is sold or refinanced later.
Is interest-only ever the better choice?
It can suit borrowers with a genuine plan to repay the capital, or landlords treating the mortgage as a cost against rent. For most owner-occupiers, repayment is safer because the debt actually goes down. This tool shows both so the trade-off is clear.
Where does the monthly gap come from?
An interest-only payment is the loan multiplied by the monthly interest rate, with no capital repaid, so the payment stays level and the debt does not move. A repayment payment adds a capital slice sized so the loan clears at the end of the term. On the £220,000 example that slice is about £397.83 a month.
What would I pay in a worked example?
Borrowing £220,000 at 4.50% over 25 years, interest-only costs an estimated £825.00 a month and £247,500 in interest across the term, with the full £220,000 still owed at the end. Repayment costs £1,222.83 a month, clears the loan, and saves an estimated £100,651 in interest overall.
Sources & Rate Verification
Rates verified against official statutory guidance on 6 September 2026.