Compare monthly payments and total cost between an interest-only and a capital repayment mortgage over the same term.
The amount you're borrowing
Assumed constant for the full term
How many years the mortgage runs for
Repayment: monthly cost
£1,535.22
Capital and interest — balance reaches £0 at the end
This result is an estimate only and does not constitute financial advice.
Interest-only: monthly cost
£1,145.83
£250,000 still owed at the end
This result is an estimate only and does not constitute financial advice.
Extra interest paid on interest-only
£133,183
Over the full term, compared to repayment
This result is an estimate only and does not constitute financial advice.
Monthly saving with interest-only
£389.39
This result is an estimate only and does not constitute financial advice.
Note: This assumes a constant interest rate for the full term, which real mortgages rarely have. It's a way to compare the two structures on equal terms, not a forecast of your actual payments.
The two mortgage types trade off monthly affordability against total cost. Repayment costs more each month because part of every payment clears capital, but it guarantees the mortgage is gone by the end of the term. Interest-only costs less each month, but the full amount you borrowed is still outstanding on the last day of the term — it's a lower monthly cost, not a lower total cost.
That's the figure worth paying attention to: the calculator above shows how much extra interest you'd pay over the full term on interest-only, purely because the balance never shrinks. Whether that trade-off is worth it depends on what you'd do with the monthly saving — investing it in a repayment vehicle that realistically outgrows the extra interest, for example, versus spending it.
Most residential mortgages today are sold on a repayment basis by default, with interest-only reserved for borrowers who can show lenders a credible plan for clearing the capital. Buy-to-let mortgages are the exception, where interest-only is standard practice — if that's your situation, the rental yield calculator is a useful companion for checking the numbers stack up.
A repayment mortgage's monthly payment covers both the interest and a slice of the capital, so the balance shrinks to zero by the end of the term. An interest-only mortgage's payment covers only the interest, so the balance never falls — you still owe the full amount borrowed at the end and need a separate plan to pay it off.
Because you're only paying interest on the balance, not paying any of it down. The trade-off is that you keep paying interest on the full original amount for the whole term, rather than on a shrinking balance, which is why the total interest bill ends up considerably higher.
Lenders typically want evidence of a credible strategy, such as a stocks and shares ISA, pension lump sum, endowment policy, or the planned sale of the property or another asset. Without an accepted repayment vehicle, most mainstream lenders won't offer an interest-only mortgage, or will only offer it on part of the loan.
Often, yes — many lenders allow you to switch during a remortgage or product transfer, though your monthly payment will jump because you'll start clearing capital too. Some borrowers use a part-and-part mortgage, paying interest-only on one portion and repayment on the rest, as a middle ground.
Speak to a broker about whether interest-only, repayment, or a part-and-part deal fits your circumstances.