A £100,000 interest-only mortgage costs between £333 and £583 per month in the UK, depending on the interest rate you’re on.
That’s considerably less than a repayment mortgage. But there’s a catch: you’ll still owe the full £100,000 when the term ends.
In this guide, I’ll break down exactly what you’ll pay each month at different interest rates, explain how interest-only mortgages actually work, cover the eligibility criteria lenders use in 2026, and walk through what happens when the term ends and what your options are.
Key Takeaways
- A £100k interest-only mortgage costs £333 to £583 per month at current UK rates (4% to 7%)
- The Bank of England base rate is 3.75% as of May 2026, with the next decision on 18 June 2026
- You only pay the interest each month. The £100,000 capital is still owed in full at the end of the term
- Lenders typically require a minimum income of £75,000 (single) or £100,000 (joint) and at least a 25% deposit
- You must have a credible repayment vehicle (a plan to pay back the £100,000) before any lender will approve you
- Around 750,000 interest-only mortgages are still outstanding in the UK, with the biggest wave maturing in 2031 and 2032
Monthly Payments on a £100k Interest-Only Mortgage
The calculation for an interest-only mortgage is straightforward.
You take the loan amount, multiply it by the annual interest rate, and divide by 12. That’s your monthly payment. Every month. For the entire term.
Here’s the formula:
Monthly payment = (Loan amount x Interest rate) / 12
So for a £100,000 mortgage at 5%:
£100,000 x 0.05 = £5,000 per year / 12 = £416.67 per month
Unlike a repayment mortgage, the monthly cost doesn’t change over time. Whether you’re in year 1 or year 25, you pay the same amount because the capital never reduces.
Payment Table: £100k Interest-Only at Different Rates
| Interest Rate | Monthly Payment | Annual Cost | Total Interest Over 25 Years |
|---|---|---|---|
| 3.5% | £291.67 | £3,500 | £87,500 |
| 4.0% | £333.33 | £4,000 | £100,000 |
| 4.5% | £375.00 | £4,500 | £112,500 |
| 5.0% | £416.67 | £5,000 | £125,000 |
| 5.5% | £458.33 | £5,500 | £137,500 |
| 6.0% | £500.00 | £6,000 | £150,000 |
| 6.5% | £541.67 | £6,500 | £162,500 |
| 7.0% | £583.33 | £7,000 | £175,000 |
At 5%, you’d pay £125,000 in interest over 25 years and still owe the original £100,000. That’s £225,000 in total for a £100,000 loan.
That’s the fundamental trade-off. Lower monthly payments now. A very large bill later.
What Rate Will You Actually Get?
As of May 2026, the Bank of England base rate sits at 3.75% (Bank of England). The next Monetary Policy Committee decision is on 18 June 2026.
But the base rate isn’t the rate you’ll pay. Mortgage lenders add their own margin on top.
In the current market, typical interest-only mortgage rates look something like this:
- 2-year fixed: around 5.00% to 5.50% (depending on LTV and lender)
- 5-year fixed: around 5.20% to 5.70%
- Tracker rates: base rate + 0.75% to 1.5%, so roughly 4.50% to 5.25%
- Standard variable rate (SVR): 7.00% to 8.50%
These rates change frequently. Always check with an FCA-regulated mortgage adviser for the most current deals available to you.
Did You Know?
A 1% difference in interest rate on a £100,000 interest-only mortgage adds £83.33 per month to your payments, or roughly £1,000 per year. Over a 25-year term, that’s an extra £25,000 in interest paid.
Interest-Only vs Repayment Mortgage: What’s the Difference?
With an interest-only mortgage, you only pay the interest charges each month. The original amount you borrowed (the capital) stays exactly the same throughout the entire term.
With a repayment mortgage, each monthly payment covers the interest plus a portion of the capital. Your balance gradually decreases until it reaches zero at the end of the term.
Here’s what that looks like in practice on a £100,000 loan at 5% over 25 years:
| Feature | Interest-Only | Repayment |
|---|---|---|
| Monthly payment | £416.67 | £584.59 |
| Monthly saving | £167.92 less | – |
| Total interest paid (25 years) | £125,000 | £75,377 |
| Balance at end of term | £100,000 | £0 |
| Total cost (interest + capital) | £225,000 | £175,377 |
The interest-only option saves you £167.92 per month. That’s significant.
But you pay £49,623 more in total interest over the full term. And you still owe the £100,000 at the end.
Interest-only isn’t cheaper. It just feels cheaper because the monthly payments are lower.
Important
With a repayment mortgage, you own your home outright at the end of the term. With interest-only, you don’t. You must have a credible plan to repay the £100,000, or you risk losing your home.
How Does an Interest-Only Mortgage Work?
The mechanics are simple.
You borrow £100,000. Each month, you pay only the interest charged on that £100,000. The capital balance never moves.
At the end of the mortgage term (typically 25 years, sometimes shorter), you must repay the full £100,000 in one lump sum.
This is sometimes called a “bullet payment” or “capital repayment event.”
If you can’t pay it, the lender will expect you to sell the property, remortgage, or make other arrangements. If none of those work, repossession becomes a possibility.
Who Are Interest-Only Mortgages For?
Interest-only mortgages aren’t available to everyone. They’re generally aimed at:
- Buy-to-let landlords who plan to sell the property to repay the loan
- Higher-income borrowers who want lower monthly outgoings and have a separate investment strategy to build the capital
- Older borrowers with significant equity who are using retirement interest-only (RIO) products
- Property investors managing cash flow across a portfolio
They’re not designed for first-time buyers or people who need the mortgage to eventually pay off their home. For that, a repayment mortgage is almost always more suitable.
Eligibility: Can You Get an Interest-Only Mortgage in 2026?
Interest-only mortgages have much stricter eligibility criteria than repayment mortgages. After the 2008 financial crisis, the FCA tightened the rules significantly, and lenders have been cautious ever since.
Here’s what most lenders require in 2026:
Income Requirements
Most lenders set a minimum income threshold for residential interest-only mortgages:
- Single applicant: £75,000 minimum annual income for most lenders (some specialist lenders may accept from £50,000)
- Joint applicants: £100,000 combined for most lenders
Some lenders are more flexible, particularly for buy-to-let products, where rental income is assessed instead.
Deposit and Loan-to-Value (LTV)
Interest-only mortgages require a significantly larger deposit than repayment products.
- Minimum deposit: typically 25% (75% LTV)
- Best rates: usually require 40%+ deposit (60% LTV or lower)
So for a £100,000 interest-only mortgage, you’d need a property worth at least £133,333 (at 75% LTV) to £166,667 (at 60% LTV).
The Repayment Vehicle
This is the big one.
Every lender will ask: “How are you going to repay the £100,000 at the end of the term?”
Your answer is called a “repayment vehicle.” You must have a credible, documented plan. Saying “I’ll figure it out later” won’t cut it.
Accepted repayment vehicles typically include:
- Sale of the mortgaged property (most common for residential borrowers with significant equity)
- Sale of another property in your portfolio
- Investments such as stocks, shares, or ISAs
- Pension lump sum (your 25% tax-free withdrawal)
- Savings in dedicated accounts
- Expected inheritance (some lenders accept this, most don’t)
- Downsizing (selling the property and buying something smaller)
Lenders will want to see evidence. For investments, that means account statements. For sale of property, that means a realistic valuation showing enough equity to clear the debt. For pensions, you’d need a statement showing sufficient funds.
Did You Know?
In its August 2023 analysis, the FCA reported approximately 750,000 interest-only mortgages and 245,000 part-interest-only mortgages outstanding in the UK, representing around 9% of all regulated mortgages — a figure that continues to fall. At that time, the median borrower was aged 56, with a remaining term of 8 years and a balance of £140,000.
Source: Financial Conduct Authority
Age Limits
Most lenders cap the maximum age at the end of the mortgage term at 70 to 80 years old.
If you’re 55 and want a 25-year interest-only mortgage, you’d be 80 at the end. That’s borderline for many lenders.
For older borrowers, retirement interest-only (RIO) mortgages may be an option. These have no fixed end date. You pay interest monthly for life, and the capital is repaid from the sale of the property when you die or move into long-term care.
What Happens When Your Interest-Only Mortgage Ends?
This is the question that keeps people up at night.
When your term expires, the full capital balance becomes due. For a £100,000 interest-only mortgage, that means you need to find £100,000.
If your repayment vehicle has worked as planned, brilliant. You pay off the loan and move on.
But what if it hasn’t?
Your Options at Term End
- Pay the full amount. If you’ve built up enough in savings, investments, or pension, you clear the debt in one go.
- Sell the property. Use the sale proceeds to repay the mortgage. If the property has increased in value, you keep the difference after clearing the debt.
- Remortgage. Switch to a new mortgage, either interest-only (if you still qualify) or repayment. Your options depend on your age, income, and equity.
- Extend the mortgage term. Some lenders will agree to extend your existing mortgage, often moving you onto their standard variable rate (SVR).
- Switch to part-and-part. Convert a portion to repayment while keeping the rest interest-only. This increases your monthly payment but reduces the final lump sum.
- Downsize. Sell the property, buy something cheaper, and use the difference to clear the mortgage.
Important
Speak to your lender well before your term ends. The FCA requires lenders to contact borrowers and explore all reasonable options before considering enforcement action. Repossession must be a last resort under FCA MCOB 13 rules. The earlier you engage, the more options you’ll have.
What If You Can’t Pay?
If you can’t repay the capital and can’t remortgage, your lender may offer forbearance measures:
- Allowing you to continue paying on their SVR while you arrange a sale
- Agreeing a repayment plan to clear the balance over an agreed period
- Converting all or part of the loan to a repayment mortgage with a new end date
But these are temporary solutions. Eventually, the lender will want their money back.
If all else fails, repossession is possible. But under FCA rules, lenders must demonstrate they’ve explored every reasonable alternative first.
The Interest-Only “Time Bomb”: Is It Real?
You may have heard this phrase. For years, the media and the FCA have warned about a wave of interest-only mortgages reaching the end of their terms, with borrowers unable to repay the capital.
The concern was legitimate. Many interest-only mortgages taken out in the early 2000s were approved without robust repayment plans. Some were paired with endowment policies that underperformed spectacularly.
But the picture in 2026 is more nuanced.
The number of outstanding interest-only mortgages has been falling steadily as borrowers have switched to repayment products, remortgaged, or repaid early. The FCA now reports fewer than 1 million interest-only and part-interest-only mortgages outstanding.
That said, the biggest wave of maturities is still ahead. The FCA’s data shows the greatest number of interest-only mortgages are set to mature in 2031 (72,000) and 2032 (77,000), with a smaller peak in 2027.
If you’re holding an interest-only mortgage that’s approaching maturity, the single most important thing you can do is contact your lender now. Not when the term ends. Not next year. Now.
Interest-Only Mortgage Payments at Different Loan Amounts
A £100,000 mortgage is below the UK average. You might be wondering how the numbers change at different loan sizes.
Here’s what interest-only payments look like across a range of loan amounts at 5% interest:
| Loan Amount | Monthly Payment (5%) | Annual Cost | Total Interest (25 Years) |
|---|---|---|---|
| £75,000 | £312.50 | £3,750 | £93,750 |
| £100,000 | £416.67 | £5,000 | £125,000 |
| £150,000 | £625.00 | £7,500 | £187,500 |
| £200,000 | £833.33 | £10,000 | £250,000 |
| £250,000 | £1,041.67 | £12,500 | £312,500 |
| £300,000 | £1,250.00 | £15,000 | £375,000 |
The pattern is linear. For every £1,000 you borrow at 5%, add £4.17 per month to your interest-only payment.
How Interest Rate Changes Affect Your Payments
If you’re on a variable or tracker rate mortgage, your payments will change when the Bank of England adjusts the base rate.
Here’s how a base rate change translates to your monthly payments on a £100,000 interest-only mortgage:
On a fixed-rate deal, these changes won’t affect you until your fix expires. That’s why many borrowers prefer the certainty of a fixed rate, even if tracker rates are sometimes lower.
The Bank of England base rate has been held at 3.75% since early 2026. CPI inflation was running at 3.3% in the 12 months to March 2026, which is above the Bank’s 2% target (MoneySavingExpert, April 2026). Most economists expect cautious, gradual rate cuts through the second half of 2026, but nothing is guaranteed.
Pros and Cons of an Interest-Only Mortgage
Advantages
- Lower monthly payments. On a £100k mortgage at 5%, you save roughly £168/month compared to a repayment mortgage
- Improved cash flow. The monthly saving can be invested elsewhere for potentially higher returns
- Flexibility. You can overpay when you’re able, keeping the option to pay less during tighter months
- Tax efficiency for landlords. Interest payments on buy-to-let mortgages receive a 20% tax credit under the current rules
Disadvantages
- You still owe the full amount. After 25 years of payments, you haven’t reduced the debt by a single penny
- Higher total cost. You pay significantly more interest over the full term because the balance never decreases
- Repayment risk. If your repayment vehicle fails (investments drop, property prices fall, pension is insufficient), you could face repossession
- Harder to get. Strict eligibility criteria mean many borrowers won’t qualify
- Negative equity risk. If house prices fall, you could owe more than the property is worth, with no capital having been repaid
- Limited product availability. Fewer lenders offer residential interest-only compared to repayment products
What If Your Interest-Only Mortgage Is About to Expire?
This is a situation we see regularly.
A homeowner’s interest-only mortgage is reaching the end of its term. They don’t have the capital to repay the lender. Remortgaging isn’t an option because of their age or changed circumstances. And they’re not sure what to do.
If this is you, here’s what I’d suggest:
- Contact your lender immediately. Don’t wait. Lenders have specialist teams for this and are required by the FCA to treat you fairly
- Get independent mortgage advice. Speak to a whole-of-market, FCA-regulated mortgage adviser. They’ll know which lenders might still offer you a deal, even if your current lender won’t
- Explore retirement interest-only (RIO) mortgages. If you’re older, these products let you pay interest for life with no fixed end date. The capital is repaid when the property is sold
- Consider selling the property. If you have equity, selling and downsizing could clear the mortgage and leave you with money to spare
- Get free debt advice. MoneyHelper (the government-backed service) offers free, impartial guidance on interest-only mortgage options
Interest-Only Mortgage Expiring? Need to Sell Quickly?
Around 60% of the properties we buy come from landlords exiting the market or homeowners whose interest-only mortgage is about to expire. We recently helped a client whose interest-only mortgage was ending and who faced repossession after a chain break. When we factored in the legal costs, ongoing mortgage payments, and estate agent fees they would have faced on the open market, our cash offer matched what they’d previously accepted through an agent. We completed in four weeks and stopped the repossession.
If your mortgage term is ending and you need certainty, get a free, no-obligation cash offer.
Can You Switch from Interest-Only to Repayment?
Yes. And many people do.
You can ask your lender to switch your mortgage from interest-only to repayment at any time during the term. This is sometimes called a “product transfer” or “variation of contract.”
Your monthly payments will increase because you’ll now be paying off the capital as well. But you’ll be building equity and working towards actually owning your home outright.
If you’re partway through a 25-year term, switching to repayment with 15 years remaining on a £100,000 balance at 5% would give you monthly payments of roughly £790. That’s nearly double what you were paying on interest-only.
The cost increase is real. But so is the peace of mind of knowing the debt is being cleared.
You can also do a partial switch, paying part of the balance on a repayment basis and keeping the rest interest-only. This is called a part-and-part mortgage, and it’s a sensible middle ground for people who want to start reducing the balance without a huge jump in monthly costs.
Can You Overpay an Interest-Only Mortgage?
Most lenders allow overpayments of up to 10% of the outstanding balance per year without penalty.
On a £100,000 interest-only mortgage, that means you could pay an extra £10,000 per year (roughly £833/month on top of your interest payments) without incurring early repayment charges.
Any overpayment goes directly to reducing the capital balance. If you overpay by £500/month on top of your interest-only payment, you’d reduce the balance by £6,000 per year. After 10 years, you’d owe £40,000 less.
This is one of the smartest strategies for interest-only borrowers. It gives you the flexibility of low monthly payments when you need them, with the option to chip away at the capital when you can afford to.
Check your mortgage terms before overpaying. Some deals charge penalties above the 10% allowance, and a few older products have more restrictive terms.
Interest-Only Mortgages for Buy-to-Let
Buy-to-let is where interest-only mortgages are most common.
Landlords typically prefer interest-only because it maximises monthly rental income. The lower mortgage payments mean more cash flow from the property each month, and the plan is usually to sell the property at the end of the term to repay the capital.
Buy-to-let interest-only products have different criteria from residential ones:
- Rental income test: the rental income must typically cover 125% to 145% of the mortgage payments (at a stress-tested rate)
- LTV: usually capped at 75%, sometimes 80%
- Minimum deposit: typically 25%
- Repayment vehicle: sale of the property is generally accepted
- Income tax: mortgage interest receives a 20% tax credit (not a full deduction) since the 2020 changes
For a £100,000 buy-to-let interest-only mortgage at 5%, your monthly payment would be £416.67. If the property rents for £650/month, you’d have roughly £233 per month before other costs (management fees, insurance, maintenance, void periods, and tax).
Frequently Asked Questions
How much would I pay monthly on a £100,000 interest-only mortgage?
Between £333 and £583 per month in the current UK market, depending on the interest rate. At 5%, you’d pay £416.67 per month. The formula is simple: loan amount multiplied by the interest rate, divided by 12.
What is the monthly payment on a £100,000 mortgage over 25 years?
On a repayment mortgage at 5% over 25 years, you’d pay approximately £584.59 per month. On an interest-only mortgage at the same rate, you’d pay £416.67 per month. The repayment option costs more monthly but clears the debt entirely by the end of the term.
Is it hard to get an interest-only mortgage in 2026?
It’s harder than getting a repayment mortgage. You’ll typically need a minimum income of £75,000 (single) — though some specialist lenders accept from £50,000 — a deposit of at least 25%, and a credible repayment vehicle. Over 90 lenders still offer interest-only products, but the criteria are stricter than they were before the FCA tightened the rules after 2008.
What happens if I can’t pay off my interest-only mortgage?
Contact your lender immediately. Under FCA rules, they must explore all reasonable alternatives before considering repossession. Options include extending the term, switching to a repayment mortgage, moving to an SVR, or selling the property. Free advice is available from MoneyHelper and Shelter.
Can I get an interest-only mortgage with a small deposit?
Generally no. Most lenders require a minimum deposit of 25% for interest-only products, and the best rates typically require 40% or more. This is significantly higher than the 5% to 10% deposit often available for repayment mortgages.
Are interest-only mortgages a good idea?
It depends entirely on your situation. If you have a solid repayment plan, a high income, and want the flexibility of lower monthly payments, interest-only can work well. If you don’t have a clear strategy to repay the capital, it’s a risk. Always speak to an FCA-regulated mortgage adviser who can assess your individual circumstances.
What is the current Bank of England base rate?
As of May 2026, the Bank of England base rate is 3.75%. The Monetary Policy Committee has held the rate at this level for three consecutive meetings. The next decision is scheduled for 18 June 2026.
Can I sell my house to pay off an interest-only mortgage?
Yes, and this is one of the most common repayment strategies. If your property has increased in value during the mortgage term, the sale proceeds will cover the outstanding balance with money left over. If you need to sell quickly, options include cash house buyers, auction, or an accelerated estate agent listing.
Disclaimer
This article is for general information purposes only and does not constitute financial or mortgage advice. Interest-only mortgages are regulated financial products, and the right choice depends on your individual circumstances.
Property Rescue is not a mortgage lender or mortgage adviser. We are a cash property buyer regulated by the FCA for Sale and Rent Back services (FCA Register 522471). We do not provide mortgage advice.
Before making any decisions about interest-only mortgages, please speak to an FCA-regulated mortgage adviser who can assess your full financial situation. Free, impartial guidance is also available from MoneyHelper (government-backed) and Shelter.
All interest rates, monthly payments, and eligibility criteria quoted in this article are based on publicly available information at the time of writing (May 2026) and are subject to change. Your actual rate will depend on your circumstances, credit profile, and the specific lender.
