Mortgage comparison

Interest only mortgage

What is an interest only mortgage?

  • An interest only mortgage allows you to make monthly payments that just cover the interest on the money you have borrowed. These payments do not pay off any capital of the sum originally borrowed.
  • This means that you’ll need to repay the full mortgage amount in one lump sum at the end of the mortgage or when you sell the property.

What's the difference between interest only and capital repayment mortgages?

An interest only mortgage allows you to pay just the interest charges on your mortgage loan. A capital repayment mortgage allows you to pay both the capital and interest off on your loan. Most mortgages are capital repayment mortgages.

Interest only mortgages

  • An interest only mortgage, a type of mortgage where you pay just the loan's interest. Once you reach the end of the mortgage term, you're required to repay the original mortgage amount (capital) in full.
  • There's a higher risk of negative equity than a repayment mortgage. The mortgage balance remains the same over the mortgage term, leaving you more exposed to changes in house prices.
  • The total amount paid in interest over the life of an interest only mortgage will also exceed the interest paid on a repayment mortgage.
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Capital repayment mortgages

  • A capital repayment mortgage, also known as a repayment mortgage, means you'd be paying back part of the mortgage and interest each month, the monthly payments are calculated so that the loan is paid off at the end of the mortgage term.
  • By paying off both capital and interest, your total debt will reduce over time, meaning the amount you owe in interest will begin to reduce.
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Does NatWest offer interest only mortgages?

As a buy to let property investment...

  • Yes, and you can apply online for a buy to let mortgage for a property you intend to rent out.

Read our handy guide on how to buy to let if you’re looking for more information on becoming a landlord.

For a home you intend to live in...

  • Yes, but we only offer this via an appointment with one of our mortgage advisers (over the phone or by video call), not online. We do this to make sure it is right for your personal circumstances and that it's managed responsibly.

As such, the following interest only mortgage criteria applies:

  • You’ll need to earn £75,000 a year, or have a combined joint income of £100,000
  • You can borrow up to 75% of the value of the property (i.e. a maximum 75% loan-to-value (LTV) mortgage)
  • Your mortgage must be at least £25,000
  • Your repayment plan needs to be approved by us

Remember you must make up any shortfall at the end of the term - if you can't repay the outstanding balance in full you could lose your home.

You'll need to be aged over 18 and have a maximum of two applicants - both of whom must be on the mortgage and the title of the property. Your term must finish before you turn 70.

If that applies to you, get in touch:

Call us now on: ${dn-0800 096 9527}

Opening hours: Mon-Fri 8am-6pm, Sat 9am-4pm, Sun Closed. Excluding public holidays.

Relay UK: 18001 0800 096 9527

Alternatively, see our other mortgage options:

How much are interest only mortgage interest rates?

  • You can use our mortgage calculator to see our available mortgage rates and find out how much your monthly payments could be for a buy to let interest-only mortgage.
  • If you want an interest only mortgage for your own home, then please contact us to speak to a mortgage professional. We don't offer this type of mortgage to all our customers and specific terms and conditions may apply.

Can I pay off an interest only mortgage early?

  • You can pay off your interest only mortgage early, but there may be limitations to the amount you can repay without incurring an Early Repayment Charge (ERC), depending on your mortgage.
  • Check your mortgage terms for more information on repayments limits or charges.

What happens at the end of an interest only mortgage?

  • The remaining balance of your interest only mortgage will need to be repaid in full at the end of your term. This is the capital you borrowed to buy your home at the beginning of the contract. The repayment is usually made as a lump sum, as agreed when you took out the mortgage.
  • If you are in the position where you can't repay the loan in full you may be able to get an extension on the mortgage term or remortgage. Another option to look at is whether you have equity in the property, this could also be used to pay off the mortgage.

Information for interest only mortgage customers

The Financial Conduct Authority (FCA) has published research into consumers’ ability to repay interest only mortgages when they mature. The findings show that many should be in a good position to repay their mortgage when it is due for repayment.

However, some borrowers will need to take control of their mortgage repayment planning now. To that end the FCA, the Council of Mortgage Lenders and the Building Societies Association are working together to ensure lenders contact their borrowers to prompt them to check their repayment plan is on track and to consider the options available to them.

The FCA believes that with careful planning, consideration and engagement with their lender, many interest only borrowers should be able to find a viable way to pay off their mortgage if they take control now.

  • For any queries or concerns, please don't hesitate to contact us.

More interest only mortgage commonly asked questions

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