Interest-only residential mortgages

An interest-only mortgage is a home loan where the monthly payment covers only the interest, so the amount borrowed stays the same throughout the term. The full loan has to be repaid at the end, from savings, investments, the sale of a property or another source. Payments are lower than on a repayment mortgage, but the debt does not reduce.

Interest-only residential mortgages are still offered by a number of banks, building societies and specialist lenders, though the rules are stricter than before 2014. Lenders now need to see a credible repayment strategy and check that the borrower can afford the payments (FCA Handbook MCOB, accessed 20 Oct 2026).

On a repayment mortgage, each monthly payment covers the interest and part of the loan, so the balance falls to nothing by the end of the term. On an interest-only mortgage the balance stays the same, so monthly payments are lower but the whole loan is still owed at the end, and more interest is paid over the term.

In a worked example, a loan of £200,000 at 5% costs about £833 a month on interest only and about £1,169 a month on a 25-year repayment basis (example figures, not market data). The interest-only borrower still owes £200,000 at the end.

Some borrowers use part and part, where some of the loan is on repayment and the rest on interest only, which lowers the payment while still reducing the debt. The interest-only mortgage calculator compares the payments on both bases for a chosen loan, rate and term.

Lenders offering interest-only residential mortgages ask for a credible plan to repay the loan, a minimum income, a lower maximum loan-to-value than on repayment loans and, often, a minimum amount of equity. Accepted repayment plans vary by lender and can include investments, pensions, other property or selling the home and downsizing.

Selling the home as the repayment plan is usually accepted only with a large amount of equity, and lenders set their own thresholds. They review the plan at the start, and many ask for updates during the term.

Interest-only is more common on buy-to-let, where the rent covers the interest and the property is sold or refinanced at the end.

Most lenders let borrowers overpay an interest-only mortgage, which reduces the balance and the interest charged from then on. During a fixed period, overpayments are usually limited to a yearly allowance before an early repayment charge applies. Regular overpayments can turn part of the loan into a repayment debt without changing the mortgage product.

Some borrowers switch part or all of the loan to repayment later, which their lender may agree to without a new application, subject to affordability. Rates on interest-only are usually a little higher than on repayment loans, and the current picture is set out on the residential mortgage rates page.

At the end of an interest-only term, the whole loan is due. If the repayment plan has fallen short, options include selling the home, extending the term, switching to repayment, or moving to a retirement interest-only mortgage where the borrower qualifies. Lenders contact borrowers in the years before the end to check the plan is on track.

Speaking to the lender early, while there is time to act, gives the most options. Borrowers worried about a shortfall can also get free help from MoneyHelper.