Interest-only vs repayment calculator
The monthly gap, the total-cost gap, and what you’d still owe.
Interest-only never touches the debt: you must have a credible repayment vehicle (investments, sale, other assets) to clear £250,000 at the end, and lenders will ask to see it. Illustration only, not financial advice — assumes a constant rate for the whole term.
On a repayment mortgage each payment clears interest plus some capital, so you owe nothing at the end. On interest-only you pay just the interest — £750 a month on £200,000 at 4.5%, versus about £1,112 on repayment — and at the end of the term you still owe the full £200,000. The monthly saving is real; the debt does not go anywhere.
The total-cost gap is the part the lower monthly figure hides. Over 25 years at 4.5%, interest-only on £200,000 costs about £225,000 in interest (because the balance never falls), against roughly £133,500 on repayment — £90,000 or so more, and you still have to find the £200,000. Interest-only only makes financial sense if the money not spent on capital is genuinely working elsewhere: a credible repayment plan, not an intention.
Lenders treat it that way too. Residential interest-only borrowing requires an approved repayment strategy — investments, pension lump sum, or a documented plan to sell — and usually a lower maximum loan-to-value, often 60–75%. It remains standard for buy-to-let, where landlords prioritise cash flow and plan around the asset’s value. For most owner-occupiers, a long-term repayment mortgage (or part-and-part) achieves the lower payment with far less end-of-term risk. Illustration, not advice.
Common questions
How much cheaper is interest-only per month?
The gap is the capital repayment. On £200,000 at 4.5% over 25 years, interest-only costs about £750 a month against £1,112 on repayment — £362 less. The gap narrows on shorter terms and widens on longer ones, because the capital is spread over fewer or more months.
Can I get an interest-only mortgage on my own home?
Yes, but with conditions: lenders require an acceptable repayment strategy (investments, pension tax-free cash, sale of another property — and sometimes downsizing, subject to minimum equity), and typically cap the loan at 60–75% of the property value. “I’ll figure it out later” does not qualify. Buy-to-let interest-only is far more freely available.
Can I switch from interest-only to repayment later?
Usually, and it is a common plan — start interest-only or part-and-part while money is tight, switch as income grows. The catch is that every year on interest-only leaves the full balance intact, so the eventual repayment mortgage is compressed into fewer years at a higher monthly cost. Switching sooner is dramatically cheaper than later.
What happens at the end of an interest-only term?
The full loan falls due. If the repayment plan has not materialised, options narrow to selling the property, remortgaging (age and affordability permitting), extending the term, or a retirement interest-only product. Lenders start writing letters years in advance for exactly this reason — the end date is a real deadline, not a formality.
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