Calculate & Compare Your Options
Mortgage Comparison Results
Repayment Mortgage
Interest Only
Key Differences
Understanding Mortgage Types
Repayment Mortgage Benefits
- Guaranteed Payoff: Loan automatically paid off by end of term with no additional planning required
- Equity Building: Build property equity from day one, improving your financial position over time
- Lower Total Cost: Significantly less interest paid over the mortgage lifetime compared to interest-only
- Peace of Mind: No need for separate repayment vehicles or investment strategies
- Lender Preference: Most widely available option with competitive rates from all UK lenders
- Rate Protection: Reducing balance means less exposure to future rate increases
Interest-Only Mortgage Features
- Lower Monthly Payments: Significantly reduced monthly outgoings, improving cash flow for other investments
- Investment Flexibility: Free up capital for other investments that may outperform mortgage interest rates
- Buy-to-Let Suitability: Popular for rental properties where rental income covers interest payments
- Repayment Vehicle Required: Must have credible plan to repay capital (investments, pensions, property sale)
- Higher Total Cost: Pay more interest over the mortgage lifetime due to unchanged balance
- Stricter Criteria: Lenders require higher deposits and proof of repayment strategy
Decision Factors
- Financial Security: Repayment mortgages offer guaranteed debt reduction and property ownership
- Cash Flow Needs: Interest-only provides more monthly cash flow for other financial priorities
- Investment Strategy: Consider if you can achieve returns above your mortgage rate with freed-up capital
- Risk Tolerance: Interest-only requires disciplined saving and investment management
- Property Purpose: Buy-to-let investors often prefer interest-only for tax efficiency
- Professional Advice: Consult mortgage advisers and financial planners for personalized guidance
UK Regulatory Requirements
- Repayment Strategy: Interest-only borrowers must demonstrate credible repayment plans to FCA-regulated lenders
- Affordability Stress Testing: Both mortgage types tested at higher rates - use our affordability calculator
- Regular Reviews: Lenders may require annual reviews of interest-only repayment vehicles
- Life Insurance: Consider decreasing term life insurance for repayment mortgages, level term for interest-only
- Rate Changes: Variable rates affect both types - consider rate comparison scenarios
- Early Repayment Charges: May apply to both mortgage types during fixed or discount periods
Frequently Asked Questions
Get answers to common questions about repayment vs interest only mortgages
What's the main difference between repayment and interest only mortgages?
With a repayment mortgage, your monthly payments cover both the interest and part of the capital, gradually paying off the entire loan over the term. With interest only mortgages, you only pay the interest each month, meaning the original loan amount remains unchanged and must be repaid at the end of the term through a separate arrangement.
Which mortgage type has lower monthly payments?
Interest only mortgages have significantly lower monthly payments as you're only covering the interest charges. However, you must have a credible plan to repay the capital at the end of the term, and the total cost over the life of the mortgage is typically much higher than a repayment mortgage.
What happens at the end of an interest only mortgage term?
At the end of an interest only mortgage, you must repay the full original loan amount in one lump sum. This typically requires a repayment vehicle such as investments, savings, pension funds, or selling the property. If you can't repay, you may need to sell the property or extend/remortgage if eligible.