Interest is the cost of borrowing money. In a mortgage, it is the charge a lender applies to the amount you owe.

An interest-only mortgage is different from a standard repayment mortgage because your monthly payments usually cover only the interest. The original loan amount, known as the capital, is not automatically paid down during the term.

That can make the monthly payment lower than an equivalent repayment mortgage, but it also creates a clear risk: you still need a credible way to repay the capital at the end.

This article is general guidance only and is not mortgage advice. Your options depend on your income, deposit or equity, credit history, property, age, repayment strategy, and lender criteria.

What is an interest-only mortgage?

An interest-only mortgage is a mortgage where your monthly payment usually covers the lender’s interest charge, but not the original amount borrowed.

For example, if you borrow £250,000 on an interest-only basis, you should usually expect to still owe £250,000 at the end of the mortgage term unless you have made separate capital repayments or reduced the balance in another way.

The key distinction is:

• Interest is the cost of borrowing.
• Capital is the original amount you borrowed.
• Interest-only means you pay the borrowing cost each month, but the capital remains to be repaid later.

public guidance explains that with an interest-only mortgage, your monthly payments only cover the interest, so it is important to have a plan for repaying the amount borrowed.

Interest-only vs repayment mortgage

For most residential borrowers, the main choice is between a repayment mortgage, an interest-only mortgage, or sometimes a part-and-part mortgage.

A repayment mortgage is usually designed so that, if you make all required payments and the mortgage runs to the end of the agreed term, the loan is repaid.

An interest-only mortgage separates the monthly interest payments from the eventual repayment of the capital. It can help with cash flow, but it does not remove the debt.

How much is a £200,000 interest-only mortgage per month?

The monthly payment depends on the interest rate and the amount borrowed. The examples below are for illustration only and do not include fees, insurance, product charges, valuation fees, legal costs, or any capital repayment.

The calculation is broadly:

Loan amount × annual interest rate ÷ 12

So, at 5.00% on £200,000:

£200,000 × 5.00% = £10,000 per year
£10,000 ÷ 12 = about £833 per month

This is only the interest. The £200,000 capital would still need repaying.

A repayment mortgage on the same balance and rate would usually have a higher monthly payment because it includes both interest and capital repayment. However, the balance should reduce over time if payments are maintained.

Why do people consider interest-only?

Borrowers usually consider interest-only because it can reduce the monthly payment compared with a repayment mortgage of the same size, rate, and term.

It may be considered by people who:

• have a credible repayment strategy for the capital
• have irregular or variable income
• receive bonuses or lump sums and want flexibility
• have significant equity in the property
• are considering a high-value mortgage
• are remortgaging and comparing ways to manage monthly costs
• are looking at buy-to-let, where interest-only is more common
• are reviewing options as they approach or enter retirement
• already have an interest-only mortgage and need a plan before the term ends

The important point is that interest-only is not automatically good or bad. It is a structure. Whether it is suitable depends on the whole case.

James Blackler at The Mortgage Blog usually starts with two questions:

1. Can the mortgage be afforded now?
2. How will the capital be repaid later?

If either answer is unclear, the application needs careful checking before you apply.

Can you sell your house if you have an interest-only mortgage?

In many cases, yes, you can sell a property that has an interest-only mortgage, provided the mortgage is repaid from the sale proceeds or another acceptable source on completion.

However, there are important checks:

• Is the expected sale price enough to repay the mortgage?
• Are there early repayment charges or exit fees?
• Is the property market likely to affect timing or value?
• Will you have enough money left to buy or rent somewhere else?
• If the property is jointly owned, do all owners agree?
• Are there legal, divorce, probate, or title issues that need separate advice?

Selling the property is a common repayment strategy, but it is not risk-free. Property values can fall, sales can take longer than expected, and your housing needs may change.

If your plan is to sell and downsize later, a lender may look at whether that plan appears realistic, including the expected equity, your age, future housing requirements, and the size of the mortgage.

What repayment strategies might lenders consider?

For an interest-only mortgage, the repayment strategy is central. Lenders do not usually want a vague promise that the loan will be dealt with later.

Different lenders have different criteria, but common repayment strategies may include:

A repayment strategy that sounds reasonable to you may not meet a lender’s criteria. For example, “I will probably downsize later” may not be enough unless the numbers and circumstances support it.

You should not rely on investment growth, future inheritance, future bonuses, or future property price increases unless the lender is prepared to consider the evidence and risk.

A common trap: “We’ll just downsize later”

Imagine a couple in their early 50s remortgaging a family home worth around £500,000 with a £250,000 mortgage. Their repayment mortgage payment is due to rise, so interest-only looks attractive because the monthly cost would be lower. Their intended repayment strategy is to sell the property in 15 years and buy something smaller.

That plan may sound sensible, but a lender is likely to test the detail rather than accept the phrase “we’ll downsize” at face value.

The practical questions would include:

• How much equity might realistically be left after repaying the mortgage and sale costs?
• Would that equity be enough to buy a suitable smaller property in the same area?
• Will the mortgage term run into retirement, and if so, is retirement income affordable?
• Are there dependent children, accessibility needs, or location constraints that make downsizing less realistic?
• Is the whole loan suitable for interest-only, or would part-and-part reduce the risk?

The broker judgement point is that the cheapest monthly payment is not always the strongest mortgage application. If the downsizing plan leaves too little equity, depends on optimistic property growth, or clashes with retirement affordability, some lenders may decline interest-only or restrict the amount available.

A more credible approach might be to evidence pension projections, savings, other assets, or consider a part-and-part structure so at least some capital reduces during the term. The lesson is simple: for residential interest-only, the repayment plan needs to work on paper before the application is submitted.

What is part-and-part, and when might it help?

A part-and-part mortgage splits the loan into two sections:

• one part on repayment
• one part on interest-only

For example, on a £300,000 mortgage, a borrower might have £180,000 on repayment and £120,000 on interest-only. The repayment part should reduce over time if payments are maintained, while the interest-only part still needs a separate repayment plan.

This can sometimes be a middle ground where full repayment is too expensive each month, but full interest-only leaves too much capital outstanding.

Part-and-part can be worth discussing where:

• you want lower payments than a full repayment mortgage
• you still want some capital reduction during the term
• your repayment strategy is strong for part of the debt but not all of it
• you expect future lump sums but do not want the whole mortgage dependent on them
• the lender’s criteria do not support full interest-only

It is not a guaranteed solution. The lender still needs to assess affordability, the property, credit profile, loan-to-value, and the repayment strategy for the interest-only portion.

How lenders may assess an interest-only mortgage

Lender criteria vary, but an interest-only assessment will usually look at more than the monthly payment.

Income and affordability

The lender will usually assess whether the mortgage appears affordable based on your income, commitments, household position, and the product being considered.

Income may include, depending on the lender and case:

• basic salary
• overtime, bonus, or commission
• self-employed income
• pension income
• rental income
• other verifiable income sources

Self-employed borrowers may need accounts, tax calculations, tax year overviews, business bank statements, or other evidence. GOV.UK’s Self Assessment guidance can be useful if you need to understand tax return records, but it is not a substitute for tax advice.

Deposit, equity, and loan-to-value

Loan-to-value, often shortened to LTV, compares the mortgage amount with the property value.

Interest-only options are often more limited at higher LTVs. Some lenders may require more equity for interest-only than they would for a repayment mortgage.

Credit history

Lenders usually check your credit history. Missed payments, defaults, county court judgments, arrears, debt management plans, or high unsecured borrowing can affect the assessment.

That does not always mean a mortgage is impossible, but it may affect:

• which lenders may consider the case
• the deposit or equity required
• the rate available
• the evidence needed
• whether interest-only is acceptable

If your credit file has issues, it is usually better to check the likely lender approach before applying. You may also find this guide useful: steps to assess and improving your credit score.

Property type

The property is the lender’s security, so it matters.

Some lenders may take a more cautious view of:

• non-standard construction
• flats above commercial premises
• high-rise flats
• short leases
• properties needing significant work
• unusual title arrangements
• properties with restrictive covenants or complex legal issues

GOV.UK’s home-buying guidance explains the wider buying process, including conveyancing and surveys. From a mortgage perspective, the lender must also be comfortable that the property is suitable security.

Mortgage term and age

The mortgage term affects monthly payments and total interest.

A longer term can reduce the monthly payment, but it may increase the total interest paid over the life of the loan. A shorter term can increase the monthly payment, but may reduce total interest if the mortgage is repaid sooner.

Age can also matter, especially if the mortgage term extends into retirement. A lender may ask how the mortgage will remain affordable and how the capital will be repaid if your income changes.

Interest-only and buy-to-let

Interest-only mortgages are more common in buy-to-let than in residential owner-occupied mortgages.

Landlords often consider interest-only because the lower monthly payment can help with cash flow. However, that does not mean it is automatically suitable.

For buy-to-let, lenders may assess rental income, property value, loan-to-value, landlord experience, personal income, tax position, and the wider application. The tax treatment of mortgage interest and rental income can be complex, especially for higher-rate taxpayers or limited company structures.

If you are deciding whether to buy personally or through a company, read: buying property limited company vs personal name. You should take tax advice where needed, as mortgage advice is not tax advice.

What can go wrong with interest-only?

The biggest mistake is focusing only on the monthly payment.

A lower payment can help with affordability, but it does not automatically make the mortgage suitable. The main risks are below.

The Bank of England sets Bank Rate as part of UK monetary policy. Bank Rate influences the wider rate environment, but your mortgage rate will depend on lender pricing, product type, loan-to-value, credit profile, property type, and the terms of the deal.

What if your interest-only mortgage is ending soon?

If your interest-only mortgage term is ending and you do not have enough money to repay the capital, act early.

Possible routes might include:

• speaking to your existing lender
• switching some or all of the mortgage to repayment
• making lump-sum or regular overpayments if allowed
• remortgaging, if affordable and available
• extending the term, if the lender allows it
• selling the property
• using other assets, where suitable
• taking regulated mortgage advice before making decisions

None of these options is guaranteed. They depend on affordability, age, equity, credit history, property value, lender criteria, and timing.

If you are already struggling with payments, contact your lender as soon as possible. FCA rules require regulated firms to deal with customers in payment difficulty in particular ways, but your best next step depends on your circumstances. public guidance also has guidance on government help and support if you cannot pay your mortgage.

Documents to prepare before asking about interest-only

A broker or lender can assess the case more efficiently if the key facts are clear at the start.

Prepare:

• proof of ID and address
• latest payslips, P60, and employment details if employed
• accounts, tax calculations, and tax year overviews if self-employed
• bank statements
• details of bonuses, overtime, commission, or variable income
• existing mortgage statement, if remortgaging
• property value or purchase price
• deposit or equity details
• evidence of deposit source
• credit commitments and any known credit issues
• details of the proposed repayment strategy
• evidence of savings, investments, pension funds, or other assets if relevant
• target timescale and any hard deadline

For interest-only, the repayment strategy evidence can be as important as income evidence. A strong case is usually one where the numbers, documents, and explanation all tell the same story.

When should you speak to a mortgage broker?

You should consider speaking to a broker before applying if:

• you are considering interest-only for a residential mortgage
• you are unsure whether your repayment strategy will be accepted
• your income is self-employed, variable, or complex
• the mortgage term may run into retirement
• you have credit issues
• the property is unusual
• you are remortgaging and payments may rise
• you want to compare repayment, interest-only, and part-and-part options
• you need a fallback if the first lender is not suitable

A broker cannot promise approval, and no one should. But a broker can help you understand which lenders may be more likely to consider your circumstances before you apply.

James Blackler at The Mortgage Blog describes interest-only as a structure, not a shortcut. The question is not only whether the payment works today. It is whether the whole plan works across the mortgage term.

If you are comparing options, speak to us before you apply. We can help you work through affordability, lender criteria, repayment strategy, and the practical risks.

• Speak to a mortgage adviser
• Make a finance enquiry

What should you read next?

• Quick guide to UK mortgage types
• What is an offset mortgage?
• Buying another property with a second mortgage
• Mortgage with no early repayment charge
• How long does it take to get a mortgage?
• Finance hurdle in UK property
• 7 reasons to use a property search agent
• What is a lock-in agreement?

FAQs

Is an interest-only mortgage cheaper?

The monthly payment can be lower than a repayment mortgage because you are not repaying the capital each month. That does not necessarily mean it is cheaper overall. If the capital remains outstanding for longer, you may pay interest on the full balance for longer.

Do you ever pay off the mortgage with interest-only?

Not through the standard monthly interest-only payment. You need a separate way to repay the capital, such as selling a property, using savings or investments, making overpayments, switching to repayment, or another lender-accepted strategy.

Can first-time buyers get interest-only mortgages?

Some may be considered, but residential interest-only can be harder to obtain than a repayment mortgage. Lenders usually want strong affordability, enough deposit or equity, and a credible repayment strategy. Criteria vary.

Can I overpay on an interest-only mortgage?

Some products allow overpayments, often within limits. Others may charge early repayment charges if you overpay above the permitted amount. Check the product terms before relying on overpayments as part of your plan.

What happens at the end of an interest-only mortgage?

The lender expects the outstanding capital to be repaid. If you cannot repay it, you may need to discuss options such as remortgaging, extending the term, switching structure, selling the property, or using other assets. Options depend on your circumstances and lender criteria.

Is interest-only suitable in retirement?

It depends. Lenders may consider income, age, term, equity, repayment strategy, and affordability in retirement. Borrowing into retirement needs careful advice because income and options may change later.