The short answer
A repayment mortgage payment covers interest and gradually reduces the amount borrowed, so the mortgage should finish at zero if payments are maintained. An interest-only payment covers the interest but leaves the original capital to be repaid separately at the end. Interest-only therefore needs a lender-accepted repayment plan and creates shortfall risk.
How repayment mortgages work
Early payments contain more interest because the balance is larger. As capital falls, less interest is charged and more of each unchanged payment goes towards the loan. Extending the term can reduce the monthly payment but normally increases total interest.
How interest-only mortgages work
On a £250,000 interest-only loan, the borrower generally still owes £250,000 at the end unless capital has been repaid separately. The borrower is responsible for maintaining a credible repayment vehicle. Lenders decide which plans they accept and may review progress.
Worked example
At an illustrative 4.5%, a £250,000 interest-only mortgage costs £937.50 a month in interest. The same loan repaid over 25 years is approximately £1,390 a month, but the repayment balance falls and reaches zero at the scheduled end. Rates, fees and future changes are excluded.
Why an interest-only repayment plan matters
Investments can fall, savings targets can be missed and a future property sale may not release enough money. A hoped-for inheritance, bonus or price rise is not the same as money already secured. Review progress early; if a shortfall is likely, contact the lender before the term ends.
Part-and-part mortgages
Some mortgages split borrowing between repayment and interest-only. This reduces some capital but still leaves a stated balance due. Treat the interest-only portion as a separate target and understand exactly what must be repaid.
Compare the two modes
The mortgage calculator switches between repayment and interest-only and shows the balance path, total interest and rate-rise illustration.
Sources and limitations
Read MoneyHelper’s repayment and interest-only explanation and repayment-plan guidance. Product eligibility is lender-specific. Send corrections to hello@propertiesandhomes.co.uk.
Reviewed by the Properties & Homes editorial team
Published and last reviewed: 14 August 2026.
Change log: first edition.