Repayment or Interest Only?

What You Need To Know

One key decision you have to make on your mortgage is between a repayment and an interest only mortgage. You either pay only the interest on the money you have borrowed, or you pay the interest and a portion of the capital each month.


  • Repayment mortgages

  1. Repayment mortgages give you the most certainty that your mortgage will be paid off within a known period.
  2. Your monthly repayments cover both capital and interest on the loan. A lender may insist on other insurance to protect their security, normally this will only be buildings insurance but the lender may recommend life insurance as well in case you die before the mortgage is cleared.
  3. A repayment mortgage is simple, straightforward and easy to understand. It also avoids the risk of investing in the stock market for your repayment vehicle.

  • Interest only mortgages

  1. An interest only mortgage allows you to pay only the interest on your mortgage. Your mortgage balance will not reduce; accordingly you will normally need some other method of repaying your mortgage at the end of the term.
  2. To ensure you can make this final payment, you may need to invest additional funds in investments which are designed to generate enough capital to repay the loan at the end of the term. Alternatively you may decide to sell the property and downsize or move into rented accommodation in order to clear the mortgage.
  3. You can choose from a variety of investment vehicles, some of which can have tax advantages. Should you move or remortgage, your investment vehicle can usually be attached to the new mortgage.
  4. Unlike a repayment mortgage, the total amount of your debt does not reduce over time. There is no guarantee that your chosen investment vehicle will grow sufficiently to repay your loan (although you can usually top up your contributions towards investments as you go along if this looks likely to be the case)

  • Part and Part mortgage

  1. Part and Part mortgages combine the advantages of both an interest only mortgage and a repayment mortgage.
  2. Your mortgage is split between how much capital you wish to pay off from your mortgage during the term, this will be the repayment aspect (paying both capital and interest) and the remainder of your mortgage balance would be on interest only.
  3. You choose how you wish to split the repayment part and the interest only part.
  4. Has a lower monthly payment than a normal repayment mortgage as you are only paying off part of the capital. However, overall this type of mortgage will be a more expensive option that a normal repayment mortgage as part of your mortgage debt remains unpaid at the end of the term which still needs to be paid.
  5. Has a higher monthly payment than an interest only mortgage as you are paying a combination of both interest and an element of capital. However, overall this type of mortgage will be a less expensive option than an interest only mortgage as you will be reducing your capital leaving a smaller mortgage debt at the end of the term which still needs to be paid.

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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

SHIRE FINANCIAL SERVICES LIMITED IS AN APPOINTED REPRESENTATIVE OF SESAME LIMITED WHICH IS AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

COMMERCIAL MORTGAGES, INCLUDING BUSINESS BUY TO LET, ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY. FOR COMMERCIAL MORTGAGES WE ACT AS INTRODUCERS ONLY.