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Mortgage repayment vs interest-only (UK): the practical difference

Repayment mortgages pay interest and capital each month. Interest-only mortgages pay interest only, so you still owe the balance at the end. Here’s the difference.

Published: 21/04/2026 • Last verified: 21/04/2026

The short answer

With a repayment mortgage, your monthly payment usually covers interest + some of the amount you borrowed (capital), so the balance gradually goes down to £0 by the end of the term.

With an interest-only mortgage, your monthly payment usually covers interest only, so you still owe the full borrowed amount at the end — meaning you need a separate repayment plan.

A tiny example

Example (simple and illustrative):

  • Mortgage balance: £180,000
  • Interest rate: 5% per year

On interest-only, the “rough monthly interest” is:

[ £180,000 × 0.05 \div 12 = £750 ]

So you might pay about £750/month but still owe £180,000 at the end. A repayment mortgage on the same balance/rate/term would have a higher monthly payment because it also pays down the capital.

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