Mortgage guide
Repayment or interest-only mortgage?
A repayment mortgage is designed to reduce both the interest and the amount you owe over time. An interest-only mortgage usually covers the interest each month, leaving the original capital to be repaid separately at the end of the term.
Repayment mortgage
Each monthly payment normally reduces the debt as well as paying interest.
With a standard repayment mortgage, part of each payment covers the interest due and part repays the capital borrowed.
If all required payments are made over the full term and the mortgage conditions are met, the mortgage should be fully repaid by the end of the term.
As the outstanding balance falls, the proportion of each payment going towards capital typically increases.
Interest-only mortgage
Your monthly payment generally does not reduce the original capital.
With an interest-only mortgage, monthly payments usually cover the interest charged on the loan. The original amount borrowed remains outstanding unless separate capital repayments are made.
At the end of the term, the remaining capital must be repaid from an acceptable repayment strategy.
If the planned repayment strategy is insufficient, the borrower may need to use other assets, extend borrowing, sell the property or find another solution, subject to lender criteria.
Repayment strategy
Lenders normally need to be satisfied that the capital can be repaid.
The FCA's interest-only mortgage rules require lenders to assess the credibility of the repayment strategy where relevant. Simply hoping that property prices rise is not generally the same as having a defined repayment plan.
Investments or savings
A planned investment or savings vehicle may be used where acceptable to the lender, but investment values are not guaranteed.
Sale of another asset
Some borrowers may plan to repay the mortgage from another property or asset, subject to lender acceptance.
Downsizing
Some lenders may accept sale of the mortgaged property and downsizing as a repayment strategy in appropriate circumstances.
Lump-sum repayment
Future cash, bonuses or other known capital may form part of the plan where sufficiently credible and evidenced.
Cost
Interest-only can mean paying interest on a larger balance for longer.
Because the capital does not automatically reduce, interest is normally charged on a higher outstanding balance throughout the term than on an equivalent repayment mortgage.
This can mean the total interest paid over the mortgage term is higher, even though the monthly payment is lower.
A lower monthly payment can look attractive, but the capital still has to be repaid and any separate repayment strategy may also carry costs or investment risk.
Changing structure
It may be possible to switch between repayment and interest-only, but it is not automatic.
A lender may allow a change in repayment method, but this will depend on its criteria, the mortgage terms, affordability and the borrower's circumstances at the time.
Moving from interest-only to repayment usually increases monthly payments because the capital also starts being repaid over the remaining term.
Making the decision
The right structure depends on more than the size of the monthly payment.
Certainty of repayment
A repayment mortgage provides a structured route to clearing the debt by the end of the term if payments are maintained.
Cash flow
Interest-only usually reduces the contractual monthly payment but leaves the capital to be dealt with separately.
Repayment strategy
Interest-only requires a credible and realistic capital repayment plan.
Risk
If the repayment strategy relies on investments or future property values, the outcome can be uncertain.
The decision should consider the full term, total cost, affordability and how the debt will ultimately be cleared.
Mortgage advice
Not sure whether repayment or interest-only fits your circumstances?
A mortgage review can compare the monthly payment, total cost, lender criteria and how the outstanding capital would ultimately be repaid.
Book a conversationThis guide is for general information only and is not personal mortgage or financial advice. Interest-only lending is subject to lender criteria and an acceptable repayment strategy may be required. Your home may be repossessed if you do not keep up repayments on your mortgage. Content checked against current FCA and MoneyHelper guidance on 16 September 2026.