Interest only vs repayment mortgages


Whether you’re buying an investment property or looking to buy your own home, the chances are you will have to raise the finance for your purchase by taking out a mortgage.

The type of mortgage you choose very much depends on your personal financial circumstances and what your long-term financial aims are.

Here are a few points to consider when looking at interest only and repayment mortgages.

Interest-only mortgage

An interest only mortgage means just that – you only pay the interest charged on the loan amount. This means the amount you borrowed remains the same over a period of time. Some people choose to pay a variable interest rate, meaning the amount you pay each month may vary according to what the banks decide, while others prefer a fixed rate so they know the amount they are paying each month.

This type of loan frequently reverts to a repayment loan after a period of time.

Advantages of an interest-only loan:

  • Interest only payments are often lower than a repayment mortgage.
  • If the loan is for an investment property, the interest is tax deductible and an interest-only loan makes it easier to work out the interest paid.
  • You can control how much you put aside to eventually pay off the loan – paying more some months and less others.
  • If the property value rises, an investor can build their equity without paying off the original loan.


  • You still need to pay off the loan at some point
  • If the property falls in value, you may end up owing more than the property is worth
  • You will end up paying more over the length of the loan. This is because you’re not paying down the capital, and you’re paying interest on the full amount for the length of the loan.

Repayment mortgage (Principal & Interest)

With this mortgage, you are paying off some of the principle in your regular payments to the mortgage provider. While initially it may seem you’re not making a dent in the loan amount, after a period of time, the amount you owe will decrease more noticeably.

Again, some chose to lock in a fixed interest rate loan, while others are prepared to take the risk of interest rates increasing, and them paying more, by taking out a variable rate loan.


  • Provided you keep up with repayment schedule, the property will be yours at the end of the mortgage term.
  • If you have taken out a variable rate loan and the interest rates drop, you will pay the loan off sooner.
  • Because you are paying down the capital, there may be the option of releasing more money through refinancing later down the track.


  • You will be making higher repayments each month because you are paying off the capital of your loan as well as the interest.
  • If you have taken out a variable rate loan and the interest rates increase, you will have to pay more to keep up with the loan repayment terms and conditions

Each person’s financial situation is different, so we strongly advise you speak to financial specialist to inform you of your options so you can make informed decisions for your personal financial situation.

Property is a great way to help you realise your financial dreams. Whether it is property investment, home ownership or property management, we can help.

Being one of Newcastle’s longest established real estate offices, our experienced team can give you great advice and we are constantly delivering a great service to make your real estate experience exceptional.

Drop into the Cardiff office or give us a call on 02 4954 9777. Or send us an email to: – we’d love to hear from you.

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