Mortgages are pain. Plain, simple and clear mortgage advice is the cure

What’s the difference between an interest-only and a repayment mortgage?

An interest-only mortgage is one where you are only repaying the interest on the amount you borrowed, rather than on the debt itself. A repayment mortgage is one where you’re repaying both the interest and the amount you’ve borrowed from the lender.

So, to be clear, if you have an interest-only mortgage, your payments are likely to be lower – after all, you’re paying off a smaller amount of money – but at the end of it you will STILL owe all the money you borrowed, and will need to start paying that off as well. If you have a repayment mortgage, you’ll probably be paying back more each month, but you’ll know that with every payment you are (slowly) lowering your debt – and when you’ve finished paying that then you really are done.

So, which should you choose? The answer, you may not be surprised to hear, is ‘It really depends’. If you know that for the next few years you would benefit from lower monthly repayments, then an interest-only mortgage might make life more affordable and less stressful. And if you’re short of capital but are looking to buy somewhere expensive – hello, Londoners! – then interest-only might be the only option.

However, with an interest-only mortgage, you’ll be making repayments for a longer period overall than you would with a repayment mortgage. So if you have higher earning potential, then a repayment mortgage is likely to be the best option – the monthly payments are higher, but you’ll be paying off your mortgage faster.

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