Breakdown
How it works
Interest-only payments are lower but the full loan is still owed at the end. You need a repayment vehicle — investments, sale of the property or another asset. Over 25 years, interest-only costs roughly twice the total interest of a repayment mortgage.
Formula
Worked example
300,000 at 4.5% over 25 years: interest-only 1,125 a month vs repayment 1,667. Investing the 542 difference at 5% grows to 323,000 — just enough; at 4% it falls short.
Frequently asked questions
Who can get an interest-only mortgage in the UK?
Typically 25%+ deposit, minimum income £75,000+ and an acceptable repayment strategy. Buy-to-let mortgages are mostly interest-only by design.
Is interest-only cheaper overall?
No — it is more expensive in total interest. It wins only if the invested difference beats the mortgage rate after tax and fees, which is uncertain.
What happens at the end of the term?
You must repay in full. Lenders will contact you from 10 years out; options are sale, downsizing, remortgaging onto repayment, or retirement interest-only mortgages.