Can I get an interest-only mortgage?

An interest-only mortgage can reduce your monthly payments because you pay the interest on the loan for a set period. The trade-off is that you usually don’t repay the capital during that time—meaning the full balance is due later.

So, can you get one? In many cases, yes. But interest-only lending is typically more selective than repayment mortgages, and lenders usually expect a clear, credible plan for repaying the capital at the end of the term.

What is an interest-only mortgage?

With an interest-only mortgage, your monthly payment covers:

• Interest charged on the amount you borrow

And your monthly payment does not reduce the loan balance (the capital).

At the end of the mortgage term, you’re expected to repay the full amount borrowed. This is often referred to as your repayment plan or exit strategy.

How an interest-only mortgage works (in practice)

Most interest-only mortgages are structured so that:

• You pay interest-only for an agreed period (the mortgage term)
• The capital remains outstanding throughout
• When the term ends, you repay the capital in full

Because the capital isn’t being reduced, the end-of-term repayment is a key part of the arrangement. Lenders will generally want confidence that you can repay the balance when it’s due.

Interest-only vs repayment mortgages

Repayment mortgage

• Monthly payments include interest + capital
• The mortgage is expected to be paid off by the end of the term

Interest-only mortgage

• Monthly payments cover interest only
• The mortgage balance is expected to be repaid at the end of the term

If you’re considering interest-only, it helps to compare not just the monthly payment, but also what happens when the term ends.

Are interest-only mortgages available for home buyers?

Yes, interest-only mortgages can be available for home buyers. However, they’re often less common than repayment products and may come with tighter lending requirements.

Lenders may focus particularly on:

• Your deposit
• Affordability (even though payments may be lower)
• Your repayment plan for the capital
• Your credit history and overall financial position
• The property type and risk profile

What lenders typically look for

While criteria vary by lender, interest-only applications commonly need more than just meeting affordability on paper.

1) A deposit

A larger deposit can help reduce lender risk. Many lenders expect deposits that are meaningfully higher than those used for some repayment mortgages.

2) Evidence you can service the interest

Even with lower payments, lenders still need confidence you can reliably pay the interest throughout the term.

3) A credible repayment plan

You’ll usually need to demonstrate how the capital will be repaid at the end of the term. Common examples include:

• savings held for repayment
• investments (where appropriate and supported by evidence)
• sale proceeds from the property
• other funds available to repay the loan

The important point is that the plan should be realistic and supported by evidence, not just a general intention.

4) Strong credit history

As with any mortgage, your credit record matters. Missed payments or other adverse information can affect outcomes.

5) Property considerations

Some property types or circumstances may be less likely to be accepted for interest-only lending.

Advantages of an interest-only mortgage

Interest-only mortgages may appeal where cash flow is a priority and you have a separate plan to repay the capital.

Potential benefits include:

• Lower monthly payments than a comparable repayment mortgage
• Cash flow flexibility if you want to allocate funds elsewhere (for example, savings or investments)
• Affordability support if you expect income to increase later or you have a known lump sum event

Disadvantages and risks to understand

Interest-only mortgages can be suitable for some borrowers, but they carry risks that repayment mortgages largely avoid.

1) You still owe the full capital at the end

If your repayment plan doesn’t work out, you may face difficulty repaying the balance when it’s due.

2) Negative equity risk

If property values fall, you could owe more than the property is worth—particularly problematic if you need to sell to repay the loan.

3) Stricter lender criteria

Because the capital isn’t being repaid through monthly payments, lenders often require stronger evidence and may be less flexible than for repayment mortgages.

4) Ongoing uncertainty

If your circumstances change or interest rates rise, you may still need to sustain the interest payments for the full term.

What happens at the end of an interest-only mortgage?

At the end of the term, the expectation is that the capital is repaid in full. If you can’t repay the balance as planned, options may include (depending on lender and circumstances):

• switching to a repayment arrangement (where available)
• extending the mortgage term (subject to agreement)
• remortgaging
• selling the property
• considering alternative structures (for example, part interest-only/part repayment)

The availability of these options can depend on affordability, property value, and lender policy at that time.

Other options if interest-only doesn’t fit

If you’re not confident you can repay the capital at the end of the term, you may want to compare alternatives such as:

• repayment mortgages
• part and part mortgages (repaying some capital while keeping part interest-only)
• adjusting the mortgage term or structure to better align with your repayment plan

Preparing for an interest-only mortgage application

Interest-only lending is often documentation-heavy. Being organised can help you present a stronger application.

You may need information such as:

• proof of income and affordability evidence
• details of your deposit and available funds
• evidence supporting your repayment plan
• information about the property and its valuation

Important considerations

A mortgage arranged on an interest-only basis means you will not make repayments towards the capital of the loan and you will have the full loan balance to repay at the end of the agreed mortgage term. It is your responsibility to ensure you have a suitable repayment plan in place.

Your home may be repossessed if you do not keep up repayments on any loan secured against it.