Customize Consent Preferences

We use cookies to help you navigate efficiently and perform certain functions. You will find detailed information about all cookies under each consent category below.

The cookies that are categorized as "Necessary" are stored on your browser as they are essential for enabling the basic functionalities of the site. ... 

Always Active

Necessary cookies are required to enable the basic features of this site, such as providing secure log-in or adjusting your consent preferences. These cookies do not store any personally identifiable data.

No cookies to display.

Functional cookies help perform certain functionalities like sharing the content of the website on social media platforms, collecting feedback, and other third-party features.

No cookies to display.

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics such as the number of visitors, bounce rate, traffic source, etc.

No cookies to display.

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

No cookies to display.

Advertisement cookies are used to provide visitors with customized advertisements based on the pages you visited previously and to analyze the effectiveness of the ad campaigns.

No cookies to display.

Skip to content
Home » What is the difference between interest-only and mortgage?

What is the difference between interest-only and mortgage?

When considering a mortgage, one crucial decision to make is how you plan to repay it. The two primary options are interest-only and repayment mortgages, each with distinct features. An interest-only mortgage requires monthly payments that solely cover the interest charged on your loan. This means the initial amount you borrowed remains unchanged throughout the term, with the full balance due at the end. On the other hand, a repayment mortgage involves monthly payments that cover both the interest and a portion of the principal amount. Over time, as you make these payments, the total amount owed decreases until the loan is fully repaid by the end of the term.

The main difference lies in how the principal balance is handled throughout the mortgage term. With an interest-only mortgage, the principal amount remains static until the end of the term, where a lump sum payment or a refinancing plan is often required to settle the outstanding balance. This type of mortgage can be appealing to those seeking lower initial payments, often popular among investors or those with irregular income streams. However, it’s crucial to have a clear repayment strategy in place, as failing to repay the principal can lead to financial challenges down the road.

On the other hand, a repayment mortgage ensures that the principal amount is gradually paid off alongside the interest, resulting in a zero balance at the end of the term. This option provides a structured path to full ownership of your home, with each payment contributing to reducing the overall debt. While repayment mortgages typically have higher initial monthly payments compared to interest-only mortgages, they offer the peace of mind that comes with steadily decreasing debt and eventual full ownership of the property.

In summary, the key distinction between interest-only and repayment mortgages lies in how the principal amount is handled over the mortgage term. Interest-only mortgages involve monthly payments covering only the interest, with the principal amount due as a lump sum at the end of the term. Conversely, repayment mortgages involve payments that gradually reduce both the interest and principal, resulting in full ownership of the property at the end of the term.

(Response: The main difference between interest-only and repayment mortgages is how the principal balance is handled. Interest-only mortgages have monthly payments covering only the interest, with the principal due as a lump sum at the end. Repayment mortgages involve payments that reduce both the interest and principal, resulting in full ownership of the property at the end of the term.)