Repayment mortgage
Monthly payments include capital and interest. The mortgage balance generally reduces over the term.
At the end: the balance reaches £0 if all required payments have been made.
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Mortgage essentials / 01
Two ways to repay a mortgage
The repayment method describes how you pay back the money borrowed. It is separate from the interest rate you choose.
Interest-only mortgage
Monthly payments generally cover interest only. The capital balance remains to be repaid separately.
At the end: the capital must be repaid. A credible repayment strategy is normally required; no particular strategy is recommended here.
Same loan. Different repayment paths.
A calculated example
£250,000 borrowed over 25 years at a constant illustrative 5% annual interest rate. Monthly payments, no fees or overpayments. This is not a current lender rate or offer.
Repayment balanceInterest-only capital outstanding
Repayment each month£1,461.48Capital and interest; balance reaches £0.
Interest-only each month£1,041.67Interest only; £250,000 capital still due at the end.
The smaller interest-only monthly payment does not repay the loan. You need a suitable plan to repay the full capital. Neither illustration predicts eligibility or recommends a repayment method.
Compare yearly capital balances
| Year | Repayment | Interest-only |
|---|---|---|
| 0 | £250,000.00 | £250,000.00 |
| 5 | £221,450.47 | £250,000.00 |
| 10 | £184,811.19 | £250,000.00 |
| 15 | £137,789.85 | £250,000.00 |
| 20 | £77,444.60 | £250,000.00 |
| 25 | £0.00 | £250,000.00 |
Illustrative information only. This does not constitute mortgage advice or a mortgage offer.
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