Choosing buy-to-let interest-only or repayment affects both your monthly payment and the debt you owe. Capital means the money you borrow; interest is the lender’s charge for that loan. With interest-only, monthly payments cover the interest. With repayment, they also pay back some of the loan, so the debt falls over time.
Compare the payments alongside your rental budget and plans for the remaining debt. Neither method is the right choice for every landlord.
How the two repayment methods compare
INTEREST-ONLY
Lower payments, capital due later
Monthly cash flow
For the same loan and rate, a buy-to-let interest-only mortgage has lower monthly payments. This leaves more cash before other costs and any money set aside to repay the loan.
The balance you owe
These payments do not reduce the loan itself. You need a separate plan to repay it when the mortgage term ends.
REPAYMENT
Higher payments, debt falls over time
Monthly cash flow
A repayment buy-to-let mortgage pays back capital as well as interest. Payments are higher for the same loan, rate and term, so allow for this in your rental budget.
The balance you owe
The debt falls as you make the required payments. If you make all payments in full, you should owe nothing when the agreed term ends.
Repayment method is separate from the interest rate. A lender may offer either method with a fixed rate or a rate that can change. Interest-only payments can rise when the rate changes. For wider context, explore how buy-to-let mortgages work.
Compare monthly payments and remaining debt
This example uses a £150,000 loan over 25 years, a 5% annual interest rate and £1,200 monthly rent. The rate stays unchanged throughout this illustration. It assumes no fees, overpayments, extra borrowing or missed payments.
Measure
Interest-only
Repayment
Monthly mortgage payment
£625.00
£876.89
Rent less mortgage, before other costs and tax
£575.00
£323.11
Balance after five years
£150,000
About £132,870
Balance after 25 years
£150,000
£0
The repayment option costs £251.89 more each month, but part of it reduces the debt. That difference is not simply less profit. With interest-only, you may need to set aside some of the cash left to help repay the loan.
Allow for the wider costs of running a rental property, gaps in rent and tax before judging cash flow. Changing repayment method does not change gross rental yield if the rent and purchase price stay the same.
These figures show how the maths works; they are not mortgage offers. We calculate interest monthly in this example, so lender figures may differ slightly. You can explore your own figures with the buy-to-let calculator.
Check what your budget can support
Your budget needs to work when the home is empty or a repair bill arrives. Starting with the rent you can reasonably expect, allow for both monthly costs and bills paid once a year. This gives you a clearer view of what the cash left after the mortgage needs to cover.
If the higher payment would leave little spare cash, test how you would cope with a gap in rent. Equally, choosing a lower payment only helps your long-term plan if you can still fund the debt due at the end. Keep a cash reserve separate from any fund meant to clear that debt.
Plan for the outstanding mortgage balance
With interest-only, you need a plan to clear the capital that your lender accepts. Reviewing it regularly against the amount owed and the time left helps you spot a possible shortfall. If a gap starts to emerge, speaking to your lender early gives you more time to explore your options.
Selling the property
If your plan relies on selling the property, allow for selling costs and the risk that the price falls short of the amount you owe.
Using savings or investments
Savings or investments may also leave a gap, so review whether the funds you expect to have will cover the capital due.
Taking out another mortgage
Your ability to remortgage will depend on meeting the lender’s requirements at the time. If you do take out a new mortgage, it replaces the existing loan, so you will still need a plan to repay the debt.
For the same loan, rate and term, you will usually pay more total interest with interest-only. This is because the debt stays the same unless you pay back some capital. Repayment reduces debt, but property values can still fall. Equity is the value of your property less the loans secured against it.
Your plans may change over a long loan term. For instance, you might want to keep the home for income in retirement, which would mean finding another way to repay the debt. If selling remains your chosen route, allow enough time to find a buyer and complete the deal.
How lenders assess your mortgage application
A lower monthly payment does not automatically mean you can borrow more. Lenders assess rent using their own affordability tests, which may apply a higher interest rate than the one you will pay. Their rent assessment may also differ from an agent’s estimate.
The loan-to-value (LTV), property and your finances matter too. Loan-to-value compares the mortgage balance with the property’s value. Check how lenders assess landlords and rental figures before relying on either repayment method or a loan amount.
Review repayment options when you remortgage
A fixed-rate deal ending is different from the whole mortgage term ending. When reviewing buy-to-let remortgage options, compare the balance, time left, fees and any early repayment charges.
Changing repayment method needs lender agreement and must meet its criteria, so check your options before making plans. Any higher payments will also need to fit your budget. Extending the term may reduce the monthly payment, but it can mean paying more interest overall.
How Muttuo can help
Muttuo compares options from more than 100 lenders across the market. We can help you review repayment methods, rental figures and borrowing costs for a purchase or an existing mortgage.
Review interest-only and repayment options
Compare payments and borrowing costs
Check the lender’s requirements
Talk through your repayment options
Discuss your property plans and borrowing needs with an adviser.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The FCA does not regulate some buy-to-let mortgages.
Common questions about buy-to-let repayment methods
Are all buy-to-let mortgages interest-only?
No. Repayment mortgages also exist, although availability depends on the lender, property and your application. Compare both methods against your monthly budget and plans for the debt.
Can I overpay an interest-only buy-to-let mortgage?
Your mortgage may allow capital overpayments. Check the allowance, any early repayment charges and how the lender applies your payment. Do not assume every mortgage has the same rules.
Can a buy-to-let mortgage be part interest-only and part repayment?
Some lenders offer this split, often called part-and-part. One portion reduces through repayments; the interest-only portion still needs a plan to clear the remaining capital. Availability depends on the lender.
What happens if the property falls in value?
You still owe the mortgage debt. A lower value can reduce your equity and affect a sale or remortgage. Repayment reduces debt but does not guarantee that your equity will grow.
