Published: 4 June 2025
What is an interest only mortgage?
If you have an interest only mortgage, your monthly payments only cover the interest on the money you borrowed. It doesn’t cover paying back some of the loan each month.
How does an interest only mortgage work?
1. Interest only vs. repayment: how mortgage repayments work
The two main ways of paying a mortgage are called interest only and capital and interest (sometimes called repayment).
If you have a capital and interest mortgage, your monthly payments are made up of two parts. The first is the capital, which is the money you borrowed. The second is the interest – at the rate your lender charges you for borrowing the money.
If you have an interest only mortgage, your monthly repayments will be made up of only the interest, not the capital. This means that you’ll only pay the interest on your mortgage throughout the mortgage term. When you get to the end of your mortgage, you’ll then have to pay back all the money you borrowed.
Paying off the capital
With an interest only mortgage, you need to have a plan in place to pay back the capital. This is known as a ‘repayment vehicle’, or ‘repayment strategy’. These can include:
- ISAs
- An endowment policy
- A lump sum from a personal pension plan
- We also accept the sale of the mortgaged property
You’ll need to prove to your lender that your repayment strategy will leave you with enough money at the end of your mortgage to pay back the loan amount.
Your lender will usually check throughout the mortgage term that your repayment plan is still in place and on track to repay the loan amount.
2. Interest only mortgages can offer lower monthly repayments
If you have an interest only mortgage, your monthly payments could be lower than if you had a repayment mortgage, because you aren’t paying back any of the capital each month.
This may leave you with more money in your pocket than if you had a capital and interest mortgage. But remember, you’ll also have to budget for the cost of your repayment strategy.
3. Interest only mortgages tend to be more expensive overall
With a capital and interest mortgage, the interest is based on the amount of capital you have left to repay, not the original amount you borrowed. So the overall interest you have to pay will be lower, because each month you’re paying off small amounts of the capital.
But if you have an interest only mortgage, you’re not paying off the capital, so the amount of interest isn’t going down. And then at the end of the mortgage term, you still have to pay off the amount you borrowed, too.
You can use our mortgage calculator to get an idea of how much you might pay each month with an interest only mortgage.
4. You could switch to a capital and interest mortgage later
If you take out an interest only mortgage, you may have the option to switch to a capital and interest mortgage.
But, if you do choose to switch, your monthly repayments will increase. In most cases, they will be even higher than if you had a repayment mortgage from the start. This is because you normally have to pay off the mortgage over a shorter period of time (for example, 20 years rather than an original 25 years).
Once you’ve switched to a capital and interest mortgage, you don’t need to have a repayment vehicle to re pay the loan at the end of the term (so you may decide not to progress with this). As long as you keep up your mortgage payments, your mortgage amount, including interest, will be cleared at the end. But you should check with your lender that there won't be any fees to pay at the end of the mortgage term.
If you do switch from an interest only mortgage to a repayment mortgage, you normally can’t switch back to interest only again in the future.
5. Part and part mortgages
Some lenders offer part and part mortgages. Also known as a part capital and interest, part interest mortgage, you pay back some capital and some interest every month, but at the end of your mortgage there will still be capital left to pay. Part and part mortgages are the least common repayment type.
Part and part mortgages may often be used by people who already have a repayment strategy in place to pay off a chunk of their mortgage capital - but not all of it. By paying part of their mortgage on an interest only basis, they can have lower monthly repayments. Then, when the mortgage comes to an end, they use the repayment strategy to pay off the remaining capital.
Can I get an interest only mortgage?
You’ll need to meet the lending criteria and there may be specific requirements. These could include:
- A large deposit (sometimes as high as 25%)
- A maximum loan to value (LTV)
- Income criteria for both sole and joint applicants
Lenders will need to make sure you can afford the mortgage and have a viable plan to be able to pay back the capital at the end of the mortgage term, so expect to be asked a lot of questions about your finances and potential repayment plan if you apply.
How to get an interest only mortgage
To apply for an interest only mortgage, you’ll need to speak to a bank, building society or a mortgage broker. You can see our range of interest only mortgages here.
Last updated: 4th June 2025.
This guide is not advice and you should seek independent financial or legal advice if needed.
Your property could be repossessed if you don't keep up your mortgage repayments.
