Compare interest-only mortgages rates

What is an interest-only mortgage?

An interest-only mortgage is one where you only pay off the interest on a home loan, rather than repaying any of the capital you borrowed. You can also get interest-only remortgages. 

Interest-only mortgages cost far less each month than repayment mortgages because your monthly repayments don't reduce the overall debt. At the end of the term, you'll still owe all the capital you originally borrowed - and you'll have to pay it back in full.

Here's an example. If you take out a £180,000 interest-only mortgage over 25 years with an interest rate of 3.5%, the monthly interest repayments would be £525 (£157,644 in total). But when the mortgage ends, you'll still owe £180,000.

Can I get an interest-only mortgage?

Interest-only mortgage deals haven't been easy to get since the financial crisis in 2008. Lenders are now more cautious about offering these deals as they’re seen as much riskier.

There's only a handful of lenders who will offer interest-only mortgages. To get an interest-only mortgage, you need to meet tough affordability criteria. This includes having a large deposit and a solid repayment plan in place for how you'll pay off the balance at the end of the term.

If you do manage to get an interest-only mortgage, your lender may want to check from time to time that your repayment plan is on track.

However, when it comes to getting an interest-only mortgage, buy-to-let customers are in luck. There are still lots of interest-only mortgages available to landlords. That's because lenders have the security that the home can be sold at the end of the term.

What’s the difference between interest-only and repayment mortgages?

Most property purchases are made using a repayment mortgage. This is when each monthly repayment pays off a portion of the amount borrowed, plus some interest. At the end of the mortgage term, you're guaranteed to owe nothing, and you’ll own your house in full.

By comparison, interest-only mortgages don’t make inroads into the capital amount that you owe - they only require you to pay off the interest each month. This means you will still owe the original amount borrowed once your mortgage term has come to an end.

Interest-only mortgages are not cheaper than repayment mortgages overall, but they typically cost less each month. You can work out how much you'd pay using an interest-only mortgage calculator.

Repayment mortgages usually cost more each month, but less over the mortgage's term. You'll find it easier to get a low-interest mortgage for repayment than you will to get an interest-only deal.

What happens at the end of an interest-only mortgage term?

As interest-only mortgages allow you to pay off just the interest each month, you will still owe the original amount borrowed once your mortgage term has come to an end.

This means you still need to repay the capital. This could be from savings, an inheritance or selling the property. Or you may be able to get another mortgage instead.