Some buyers choose interest-only mortgages because they want lower monthly payments. However, this type of mortgage needs extra checks as lenders look at applications very carefully. Knowing how these loans work, what the risks are, and how the rates compare will help you decide if this option fits your needs.

What is an interest-only mortgage?

An interest-only mortgage means you pay only the interest on your loan each month. The capital, or the amount you borrowed, stays the same during the term. At the end, you must repay the full balance in one go.

For example, if you borrow £180,000, your monthly payments cover only the interest. The full £180,000 still needs to be repaid at the end of the term. Because of this, lenders often ask for a clear repayment plan as part of an interest-only mortgage.

How do interest-only mortgages work?

An interest-only mortgage lowers your monthly payments because you pay only the interest, not the capital. This can help in the short term, but the full loan must still be repaid when the term ends.

If you ask yourself, how can I get an interest-only mortgage, lenders will want a clear plan to repay the balance. Common options include:

  • Savings or investments that will grow over time
  • Money from selling another property
  • Pension funds or other long-term assets

Without a solid plan, most lenders will not approve the loan.

What are interest-only mortgage interest rates?

Interest-only mortgage rates are usually higher than repayment mortgage rates. Lenders see them as riskier because the loan balance does not reduce during the term.

Your rate depends on factors like deposit size, income, and credit history. For example, a borrower with a 40% deposit and a strong repayment plan may get better terms than someone with only 10%. Comparing interest-only mortgage rates from different lenders shows how affordable this option is for you.

Can I pay off an interest-only mortgage early?

Yes, many lenders allow early repayment. You might be able to make lump sum payments or switch part of the loan to repayment. Doing this can reduce the balance and save money over time.

Borrowers often ask, where can I get an interest-only mortgage that allows early repayment. These products are available from banks, building societies, and specialist lenders. Each has different rules, so always check for early repayment charges before making extra payments.

Pros and cons of interest-only mortgages

Like any financial product, an interest-only mortgage has both advantages and drawbacks. Knowing both sides helps you decide if it fits your goals.

Pros

  • Lower monthly payments – You only pay the interest, so costs are lower than repayment mortgages.
  • Flexibility with money – Lower payments can free up cash for other needs.
  • Chance to invest – Some use the savings from lower payments to invest elsewhere.

Cons

  • Debt stays the same – The loan balance does not reduce, so you owe it all at the end.
  • Risk of repayment – If your plan fails, you may face financial stress or need to sell your home.
  • Stricter checks – Lenders often require bigger deposits and proof of repayment plans.

Applying for an interest-only mortgage

This type of loan takes more planning than a normal repayment mortgage. Lenders need to be sure you can cover the monthly interest now and repay the full balance later.

How can I get an interest-only mortgage?

To qualify, most lenders will ask for:

  • Proof of steady income
  • A repayment plan, such as savings, investments, or selling a property
  • A larger deposit than is usually needed for repayment mortgages

If you can show these, your chances of approval are higher. A mortgage adviser can also help you find lenders willing to offer interest-only products.

Do lenders today still offer interest-only mortgages?

Yes, but they are less common than repayment mortgages. High street banks, building societies, and specialist lenders still provide them, but only under certain conditions.

Borrowers often ask, where can I get an interest-only mortgage that fits my needs. The answer depends on your finances and repayment plan. Some lenders limit them to higher earners or people with strong equity. Others may require proof of investments that will mature before the mortgage ends. Comparing providers will help you find a suitable option.

Frequently asked questions

Q1: Can I rent out my home if I have an interest-only mortgage?

Yes, but you must first get your lender’s approval. Most residential mortgages do not allow renting without “consent to let.” If you plan to rent for a long time, the lender may ask you to switch to a buy-to-let mortgage. Rules vary, so always confirm first. Renting without permission could break your agreement and cause serious financial issues.

Q2: Are interest-only mortgages suitable for retirement planning?

They can be, but only with careful planning. Some people use these mortgages to keep payments low until they retire, then plan to sell the home to clear the debt. Others link them to pensions or investments. The risk is that investments may not grow as expected. It’s important to get advice and make sure your retirement income can cover the repayment.

Conclusion

Interest-only mortgages are still available, but not as common as before. They offer lower monthly payments and flexibility, but the risk of repaying the full balance at the end makes them a serious commitment.

Before choosing this type of loan, weigh the pros and cons, compare interest-only mortgage rates, and make sure you have a strong repayment plan. Speaking with an adviser and exploring guides like an interest-only mortgage will help you decide if it is the right choice for you.