Interest Only vs Repayment Mortgage Calculator United Kingdom

Choosing between interest-only and repayment changes both what you pay each month and what the loan costs in total. This calculator compares the two on the same loan, rate and term, showing the monthly difference and the very different total interest. Interest-only is cheaper each month but leaves the whole balance owing when the term ends.

How each mortgage type works

A repayment mortgage, also called capital and interest, spreads the loan over the term with a level monthly payment. Early on most of each payment is interest and little goes to the loan; as the balance falls the split reverses. By the last month the balance is zero and you own the property outright. With an interest-only mortgage you pay only the interest each month, so the balance never falls. The payment is lower, but at the end of the term you still owe everything you borrowed.

The monthly difference

A repayment payment has to cover the interest and reduce the debt; an interest-only payment only covers the interest. That is the monthly difference the calculator shows, and it grows with the size of the loan and the length of the term. Some borrowers turn to interest-only when a repayment payment feels unaffordable, but the monthly saving is cost put off until later, not money saved.

The total interest tells the real story

On a repayment mortgage the balance shrinks every month, so each month’s interest is slightly lower than the last and the total over the term is limited. On an interest-only mortgage the balance never falls, so you pay interest on the full loan in the last year just as in the first. Over the whole term the total interest is much higher, and the original loan is still outstanding. The calculator totals the interest for each method so you can compare them directly.

When interest-only can make sense

Buy-to-let landlords commonly use interest-only, because lenders test the rent against the interest cost and the landlord plans to sell or refinance later. Some borrowers with irregular income, a maturing investment or a planned downsize use it deliberately for cash flow, backed by a real plan to repay the loan. Lenders insist on seeing that plan, whether savings, investments, a pension lump sum or a property sale. Interest-only should not be a way to borrow more than you can afford, because it only moves the problem to the end of the term.

A worked example

Take a £200,000 mortgage at an assumed 5% over 25 years. The repayment version costs about £1,169 a month, about £150,750 of interest over the term, and clears the debt. The interest-only version costs about £833 a month, roughly £336 less. By the end of the term, though, the interest-only borrower has paid £250,000 of interest and still owes the full £200,000, while the repayment borrower owns the home outright. The monthly savings add up to about £100,750, far short of the £200,000 still owed. A higher rate widens the monthly gap but also increases the interest-only interest bill.

Assumptions and limitations

This is a planning estimate, not a mortgage illustration. It assumes one interest rate, which you supply, for the whole term; real deals often start on a fixed or discounted rate and move to a variable rate later. It does not include arrangement fees, valuation costs, early repayment charges or product switches, and it does not model overpayments or offset arrangements. It also does not account for how you would repay the loan on an interest-only mortgage or how any repayment vehicle might perform. Check the exact figures with your lender or a qualified mortgage adviser before committing.

About This Tool: Interest Only vs Repayment Mortgage

Interest only vs repayment mortgage: use this tool to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.