Interest-only vs repayment mortgage cost.
Interest-only monthly
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Repayment monthly
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IO lifetime cost
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Repayment lifetime cost
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Your breakdown
Updates live as you type| Measure | Interest-only | Repayment |
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Two ways to carry the same loan
On an interest-only mortgage your monthly payment covers nothing but the interest. The balance you owe at the end of the term is exactly what you borrowed on day one. On a repayment mortgage each instalment clears interest plus a slice of capital, so the debt amortises steadily down to zero. The monthly numbers look flattering for interest-only, but they hide a debt that never moves. This calculator puts both side by side, including the lifetime cost, and reminds you that with interest-only you still owe the whole principal when the term ends.
A £200,000 loan at 5 percent over 25 years
Take the defaults. On interest-only the monthly cost is simply the loan times the monthly rate: £200,000 at 5 percent divided by 12 gives £833 a month. On repayment the standard amortisation formula lifts that to £1,169 a month, because each payment is also chipping away at the balance. Over 25 years the repayment route costs about £350,754 in total and leaves you owning the home outright. Interest-only costs £833 a month for 25 years, around £250,000 in interest, but then you must still find the original £200,000, so the true lifetime cost is £450,000 with a debt still to settle.
When interest-only genuinely makes sense
Interest-only is the standard structure for buy-to-let, where rent comfortably covers the interest and the landlord plans to sell or refinance at the end. It also suits short-term bridging finance, and a minority of high-net-worth borrowers who hold a credible repayment vehicle such as investments, a pension lump sum, or another property earmarked for sale. The £336 a month you save in this example, the gap between £1,169 and £833, is real cash flow that a landlord can put to work. What you must never do is treat that saving as free money without a concrete plan to repay the £200,000. Since the mortgage market review, lenders demand evidence of a repayment strategy for residential interest-only and will stress-test it.
Who this comparison is for
This tool serves landlords sizing up buy-to-let cash flow and residential borrowers weighing lower monthly outgoings against long-term cost. A practical tip for landlords: since the phased restriction of mortgage interest relief, individual landlords no longer deduct interest from rental profit and instead receive a 20 percent tax credit on the interest, which blunts the old advantage of a large interest-only loan for higher-rate taxpayers. Many now hold buy-to-let through a limited company precisely to keep full interest deductibility. The classic residential mistake is reaching term-end on an interest-only deal with no maturing endowment or savings pot, then being forced to sell or extend in later life. If you can absorb the higher monthly figure, repayment buys certainty: a known end date and a home you fully own. These rules and rates apply UK-wide, since mortgage lending is not a devolved matter.
Can I switch from interest-only to repayment partway through?
Usually yes, and many lenders allow it without a full new application. Switching mid-term raises your monthly payment because the capital must now be cleared over the years remaining, so the shorter the time left, the steeper the rise. Some borrowers convert a portion of the balance to repayment to ease the jump.
Why is interest-only more common for buy-to-let than for a home?
Landlords are running a business: the property is expected to be sold or refinanced, and lower monthly cost improves rental yield and cash flow. A residential borrower has no such exit other than selling the home they live in, so lenders treat residential interest-only as higher risk and require a watertight repayment plan.