Interest Only Mortgages
Interest Only
Mortgages
Interest-only mortgages mean monthly payments cover only interest, making them more affordable though the full loan remains outstanding.
What Is An Interest Only Mortgage?
With an interest-only mortgage, your monthly repayments cover only the interest on the loan, not the capital. This can make your monthly payments more affordable, though the full loan amount remains outstanding until the end of the mortgage term
What Happens at the End of an Interest-Only Mortgage?
At the end of your term, the full loan amount (capital) must be repaid. This is the original amount you borrowed to buy your home.
If you can’t repay it in full, there are options: you may be able to extend the mortgage term, remortgage, or use any equity in your property to cover the balance.
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Interest-Only vs Capital Repayment Mortgages
With an interest-only mortgage, you pay just the interest each month, keeping repayments lower, but the original loan (capital) remains the same. You’ll need a plan to repay the full amount at the end of the term.
Example: Borrow £200,000 at 3% interest. Your monthly payment would be £500, and the £200,000 capital remains outstanding until the end of the term.
A capital repayment mortgage (also called a repayment mortgage) means you pay both interest and part of the capital each month. Over time, your loan balance decreases, reducing the total interest paid, and the mortgage is fully repaid by the end of the term.
Example: Borrow £200,000 at 3% interest over 25 years. Your monthly payment would be around £950, and the loan gradually reduces until fully repaid.
Things to Consider
Benefits
Lower Monthly Payments
One of the most obvious advantages of an interest‑only mortgage is that your monthly repayments are typically much lower, because you are only paying the interest rather than both interest and capital. This can make your monthly outgoings easier to manage and free up cash for other priorities.
Greater Cash Flow Flexibility
With reduced monthly costs, you have more flexibility in your finances. That extra cash flow can help you cover household expenses, invest in other opportunities, or manage your short‑term goals with greater comfort.
Popular for Investment Properties
Interest‑only mortgages are commonly used for buy‑to‑let properties, where landlords rely on rental income to cover interest payments and plan to repay the capital through property sale or remortgaging. This flexibility can make buy‑to‑let investing more viable in the right circumstances.
Risks
Capital Must Be Repaid at the End
Because you are only paying interest, the original amount you borrowed (the capital) remains outstanding for the entire term. You need a clear plan for repaying this at the end of the mortgage, for example through savings, investments, or selling the property, otherwise you may be forced to sell your home to repay the loan.
Higher Overall Cost
Interest‑only mortgages usually attract higher interest rates than repayment mortgages, and because the loan balance doesn’t reduce over time, you can end up paying more interest overall.
No Equity Built Through Repayments
Unlike a capital repayment mortgage where your debt reduces with each payment, an interest‑only mortgage doesn’t reduce the amount you owe unless you make extra payments. This means you don’t build equity through monthly repayments alone, and your deposit may need to be larger to secure the deal.
Stricter Lender Requirements
Lenders often set tighter criteria for interest‑only mortgages because they need to see a credible plan for repaying the capital at the end of the term. You typically need a strong credit history, sufficient income, or verified repayment strategy in place.
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Simple, Straightforward Approach
Simple, Straightforward Approach
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Thousands of Products We search the whole market, comparing thousands of mortgage deals. Whether your income has changed or your deposit is smaller than expected, we’ll find a solution that fits your situation.
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Dedicated Case Manager
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Free Property Insights and Reports With our online portal, you can quickly access detailed reports about your chosen property, making it easier to make informed decisions. Reports include:
- Broadband speeds – Check connectivity before moving in.
- Energy efficiency rating – Know how much your bills might be.
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Plus, our handy home-buying checklist keeps you organised at every step.
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Flexible Appointment Options Life can be hectic, and we get it, especially if you’re juggling a 9–5. That’s why we offer late-night appointments five days a week. We’ll work around your schedule, so getting advice is easy and stress-free.
How to Apply for an Interest Only Mortgage?
Speak to a Mortgage Adviser
Talk to a UKMC adviser who will understand your finances, goals, and property plans, and help determine if an interest-only mortgage is right for you.
Review Finances and Plan Repayment
Go through your income and outgoings and create a clear plan for repaying the capital at the end of the term, using savings, investments, or other strategies.
Apply and Complete the Mortgage
Your adviser will help gather the necessary documents and submit your application. Once approved, your mortgage is arranged, with guidance on managing repayments and your capital repayment plan.
what our clients saying about us
At the end of my tether I was introduced to Sam from UKMC.
Previous advisors had failed to find me any deals worth looking at and I was feeling most despondent. Destined to continue paying waaaay too much for my mortgage.
Creative Director, TUX Creative Co
At the end of my tether I was introduced to Sam from UKMC.
Previous advisors had failed to find me any deals worth looking at and I was feeling most despondent. Destined to continue paying waaaay too much for my mortgage.
Creative Director, TUX Creative Co
At the end of my tether I was introduced to Sam from UKMC.
Previous advisors had failed to find me any deals worth looking at and I was feeling most despondent. Destined to continue paying waaaay too much for my mortgage.
Creative Director, TUX Creative Co
Frequently asked questions
Got questions? Let’s answer them
What is an interest‑only mortgage?
Who might an interest‑only mortgage be suitable for?
Interest‑only mortgages are often chosen by buy‑to‑let landlords or borrowers who want lower monthly payments and have a clear plan to repay the capital, such as from savings, investments or selling the property later.
How do I repay the capital at the end of the mortgage?
What are the risks of an interest‑only mortgage?
Can I switch from interest‑only to a repayment mortgage?
Yes. Many borrowers choose to switch to a capital repayment mortgage during the term or at the end of the interest‑only period. Doing this before your term ends may involve fees, so it’s important to discuss your options with a mortgage adviser.
