Interest-Only Mortgage
A mortgage where monthly payments cover interest but do not repay the original loan.
Read term →What is Repayment Mortgage?
A repayment mortgage is a home loan where your monthly payments cover the interest and gradually repay the mortgage balance.
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Definition
A repayment mortgage is a mortgage where each monthly payment covers interest and repays part of the original loan, so the balance is designed to fall to zero by the end of the term.
Repayment mortgage in plain English
With a repayment mortgage, you pay the lender every month. Part of the payment covers the interest charged on the loan, and part of it reduces the amount you owe.
At the start, more of the monthly payment usually goes towards interest because the mortgage balance is still high. Later in the term, more of the payment goes towards repaying the loan because the balance has reduced.
How a repayment mortgage works
A repayment mortgage is built so the loan is fully repaid over the agreed mortgage term, as long as the borrower keeps up with the scheduled payments.
Monthly repayment =
interest for the month + capital repayment
Over time:
mortgage balance reduces
interest charged gradually falls
capital repayment share usually rises
For example, if you take a 25-year repayment mortgage and make all payments as agreed, the mortgage should be cleared at the end of the 25 years.
Repayment mortgage example
On a £250,000 repayment mortgage over 25 years at 5%, the estimated monthly payment is about £1,461.48. Over the full term, the total interest would be about £188,442.53, and the loan would be repaid if all payments are made.
Mortgage
£250,000
Term
25 years
Rate
5%
Key point: the payment is higher than interest-only, but the mortgage balance is designed to reduce every month.
Calculate repayment mortgage payments
Use the UK Mortgage Repayment Calculator to estimate monthly payments, total interest and total amount repaid.
Repayment mortgage vs interest-only mortgage
The main difference is what happens to the balance. A repayment mortgage is designed to reduce the balance over time. An interest-only mortgage only pays the interest, so the original loan still needs to be repaid at the end.
| Feature | Repayment mortgage | Interest-only mortgage |
|---|---|---|
| Monthly payment | Usually higher | Usually lower |
| Balance over time | Designed to fall | Usually stays the same unless separate payments are made |
| End of term | Loan should be cleared if payments are made | Original loan still needs to be repaid |
| Main risk | Higher monthly cost | No clear plan to repay the capital |
For most standard residential buyers, repayment is the clearer structure because it combines the mortgage payment and the debt repayment into one monthly commitment.
Pros and cons of a repayment mortgage
Pros
- The mortgage balance is designed to reduce over time.
- You have a clear route to owning the home outright.
- There is no separate capital repayment plan to manage.
- It can be easier to understand than interest-only.
Cons
- The monthly payment is usually higher than interest-only.
- A higher payment can reduce affordability.
- You may need a longer term to keep payments manageable.
- Overpayments or early repayment may be restricted by your mortgage deal.
Budget check: a repayment mortgage is safer structurally, but it still needs to be affordable month after month.
Who a repayment mortgage may suit
A repayment mortgage may suit borrowers who want a straightforward route to clearing the mortgage over time.
- First-time buyers who want a clear mortgage structure.
- Home movers who want the balance to reduce automatically.
- Borrowers without a separate investment or asset plan to repay capital.
- People who want to reduce mortgage risk by steadily lowering the balance.
- Borrowers who want to own the home outright by the end of the term.