Interest-only and repayment mortgages explained

Currently, most mortgages being offered are what’s called ‘repayment mortgages’. This is where you pay back capital and interest at the same time. Find out more about what this means.

What are capital and interest?

A mortgage has two parts:

  • Capital: the money you borrow.
  • Interest: the charge made by the lender on the amount you owe.

Capital and repayment mortgage

A capital and repayment mortgage is the most common type of mortgage being offered at the moment. With this type of mortgage, you’ll make monthly repayments for an agreed period of time (known as the ‘term’) until you’ve paid back both the capital and the interest.

This means that the amount you owe will get smaller every month and, as long as you keep up the repayments, your mortgage will be repaid at the end of the term. The term is usually 25 years.

You must also then decide the type of interest rate you want on your repayment mortgage. You can choose to have the interest rate fixed over time, or variable – which means the interest rate can go up or down.

Interest-only mortgage

Another type of mortgage is an interest-only mortgage. With this type you only pay the interest due on the amount you borrowed each month, and repay the capital at the end of the mortgage term.

However, very few interest-only mortgages are now offered. If they are, it’s usually in special circumstances such as buy-to-let or if you’re in later life. 

This is because many people who were offered interest-only mortgages in the past had no means of paying back the capital at the end of the term.

The mortgage lending rules on interest-only mortgages were tightened up in 2012. But many people took these mortgages out before then and are coming to the end of their mortgage term with no way of paying the mortgage back.

If you have an interest-only mortgage and can’t repay the capital, contact your lender as soon as possible to discuss your options. The sooner you do this before your mortgage comes to an end the better. 

Was this information useful?
Thank you for your feedback.
We’re always trying to improve our website and services, and your feedback helps us understand how we’re doing.
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Talk to us live for…
Talk to us live for…
Talk to us live for pensions guidance using…
Talk to us live for money guidance using…
0800 011 3797* Hours
  • Mon – Fri:9.00am – 5.00pm
  • Sat, Sun and bank holidays:Closed

* Calls are free. We’re committed to providing you with a quality service, so calls may be recorded or monitored for training purposes and to help us develop our services.

Talk to us live for money guidance using the telephone
0800 138 7777* Hours
  • Mon – Fri:8.00am – 6.00pm
  • Sat, Sun and bank holidays:Closed

* Calls are free. We’re committed to providing you with a quality service, so calls may be recorded or monitored for training purposes and to help us develop our services.

Talk to us live for pensions guidance using web chat
Hours
  • Mon – Fri:9.00am – 6.00pm
  • Sat, Sun and bank holidays:Closed
Talk to us live for money guidance using web chat
Hours
  • Mon – Fri:8.00am – 6.00pm
  • Sat:8.00am – 3.00pm
  • Sun and bank holidays:Closed
Talk to us for pensions guidance using our web form

We aim to respond within 5 working days

Talk to us for money guidance using our web form

We aim to respond within 2 working days

Talk to us live for money guidance using WhatsApp
+44 77 0134 2744

Download app: WhatsApp

For help sorting out your debts, credit questions or pensions guidance. For everything else please contact us via Webchat or Telephone.