Calculate & Compare Your Options
Mortgage Comparison Results
Repayment Mortgage
Interest Only
Key Differences
Understanding Mortgage Types
Repayment Mortgage
- Pay off capital and interest each month
- Guaranteed to pay off loan by end of term
- Higher monthly payments but lower total cost
- Build equity in property from day one
- Most common type of mortgage
Interest Only Mortgage
- Pay only interest each month
- Lower monthly payments initially
- Need separate repayment vehicle
- Higher total cost over mortgage term
- Suitable for investment properties
Which is Better?
- Repayment for certainty and lower cost
- Interest only for cash flow flexibility
- Consider your financial goals
- Factor in investment opportunities
- Seek professional advice
Important Considerations
- Interest only requires repayment plan
- Interest rates can change over time
- Early repayment charges may apply
- Consider life insurance coverage
- Review arrangements regularly
Frequently Asked Questions
Get answers to common questions about repayment vs interest only mortgages
What's the main difference between repayment and interest only mortgages?
With a repayment mortgage, your monthly payments cover both the interest and part of the capital, gradually paying off the entire loan over the term. With interest only mortgages, you only pay the interest each month, meaning the original loan amount remains unchanged and must be repaid at the end of the term through a separate arrangement.
Which mortgage type has lower monthly payments?
Interest only mortgages have significantly lower monthly payments as you're only covering the interest charges. However, you must have a credible plan to repay the capital at the end of the term, and the total cost over the life of the mortgage is typically much higher than a repayment mortgage.
What happens at the end of an interest only mortgage term?
At the end of an interest only mortgage, you must repay the full original loan amount in one lump sum. This typically requires a repayment vehicle such as investments, savings, pension funds, or selling the property. If you can't repay, you may need to sell the property or extend/remortgage if eligible.
Can I switch from interest only to repayment during the mortgage term?
Yes, many lenders allow you to switch from interest only to repayment, subject to affordability checks and their lending criteria. This can be beneficial if your financial situation improves. Some mortgages also offer the flexibility to switch between payment types during the term, though terms and conditions apply.
Who should consider an interest only mortgage?
Interest only mortgages may suit property investors seeking rental income, those expecting significant income increases, people with substantial assets or investment portfolios, or borrowers needing temporary payment flexibility. However, they require disciplined financial planning and a credible repayment strategy. Always seek professional advice to determine suitability.