Interest-only Mortgage
With an interest-only mortgage, your monthly payments only cover the interest charged by the lender.
1 min read Buying a Home
What it means
With an interest-only mortgage, your monthly payments only cover the interest charged by the lender. The amount you borrowed doesn't reduce, so you'll need another way to repay it at the end of the mortgage term.
Example
You borrow £200,000 and only pay the monthly interest. At the end of the mortgage, you'll still need to repay the full £200,000.
Why it matters
It's important to understand how you'll repay the original loan before choosing this type of mortgage.
Interest-only mortgages are less common than repayment mortgages for people buying their own home. They allow for lower monthly payments.
Do I eventually repay the amount I borrowed?
Yes, but you'll usually need a separate repayment plan.