Interest-Only vs Repayment
Most buy-to-let landlords choose interest-only mortgages to maximise monthly cash flow and maintain flexibility. But this comes at a cost: the capital is never repaid, and you are entirely dependent on property value appreciation to build equity. This calculator shows you the monthly payment difference, the total interest you will pay over the term, and the capital position at the end — helping you make an informed choice.
Why this matters
Interest-only keeps more cash in your pocket each month, but a 25-year interest-only mortgage on £200,000 at 4.5% costs £60,000 more in total interest than a repayment mortgage — and leaves you still owing £200,000. Understanding the trade-off is essential.
Key points
- Interest-only: you pay only the interest each month; capital remains outstanding at end of term
- Repayment: each payment reduces the capital balance, so you own the property outright at end of term
- Interest-only monthly payments are significantly lower — improving cash flow
- Lenders typically require a credible repayment vehicle for interest-only mortgages (e.g. investment ISA, pension)
- Most buy-to-let lenders allow interest-only without requiring a formal repayment vehicle
- You must have a clear exit strategy for interest-only — either refinance, sell, or repay from other assets
Frequently asked questions
Which is better for a buy-to-let — interest-only or repayment?
Most landlords choose interest-only for cash flow and flexibility. However, repayment builds equity automatically and is less exposed to property price volatility. The right answer depends on your exit strategy, risk tolerance, and whether you need the cash flow.
Do buy-to-let lenders allow interest-only mortgages?
Yes — the vast majority of buy-to-let mortgages are issued on an interest-only basis. Lenders assess affordability based on rental income coverage rather than requiring a formal repayment vehicle.
What is the risk of an interest-only buy-to-let mortgage?
If property values fall, you may find yourself in negative equity with a loan that is not reducing. You also need a plan for repaying the capital at term end. These risks are why repayment mortgages or partial repayment strategies are worth considering.
Can I switch from interest-only to repayment?
Yes — most lenders allow you to switch mid-term, though this may incur early repayment charges. Overpayments are another option — many lenders allow 10% of the balance per year without penalty.