Buy to Let Interest Only vs Repayment

When comparing Buy to Let interest only vs repayment mortgages, there are many landlords that are asking the exact same question. Which option is better?

The answer completely depends on your financial goals and your investment strategy along with the long term plans you have for the property. While both of these mortgage types allow you to finance a rental property, they work in very different ways and can have a sizable impact on your ongoing monthly costs and the amount you will owe at the end of the mortgage term.

Understanding all of the differences before applying can help you choose the most suitable option for your circumstances and avoid unexpected surprises later down the line.

In this guide, we will fully explain exactly how interest only and repayment Buy to Let mortgages work, the advantages and disadvantages of each, and all of the factors that are worth considering before making a decision.

If you are still at the beginning of your property investment journey, our guide explaining how to get a Buy to Let mortgage covers the application process in more detail. 

What Is an Interest Only Buy to Let Mortgage?

With an interest only Buy to Let mortgage, your monthly repayments only cover the interest that is being charged on the loan.

Because you are not actually reducing the amount that is borrowed each month, the outstanding mortgage balance remains unchanged throughout the whole mortgage term.

At the end of the agreed term, you will then responsible for repaying the full loan amount.

Many landlords plan to do this by selling the property or refinancing it when that time comes. 

What Is a Repayment Buy to Let Mortgage?

A repayment mortgage works slightly differently to this, as each monthly payment covers both the interest charged and a portion of the original loan.

As time passes and more payments are made, your outstanding mortgage balance gradually reduces until the loan is fully repaid. 

Although the monthly payments will likely be higher than with an interest only mortgage, you are building up equity in the property throughout the mortgage term.

Buy to Let Interest Only Vs Repayment

Both mortgage types have their own advantages depending on your circumstances, and understanding the key differences can help you decide which approach best supports your own personal investment goals.

Monthly repayments

One of the most noticeable differences is the monthly payment amount.

Interest only mortgages will more often than not have lower monthly repayments because you will only be paying the interest charged by the lender.

Repayment mortgages usually cost more each month because you are paying off both interest and part of the original loan.

For landlords who are more focused on maximising monthly cash flow, this difference can be a significant one.

Outstanding mortgage balance

With an interest only mortgage, the amount you borrowed usually remains exactly the same throughout the whole mortgage term.

With a repayment mortgage, the balance will gradually decrease as each payment reduces the amount owed.

This means that borrowers who take out repayment mortgages steadily build ownership of the property over time.

Cash flow

Many property investors choose interest only mortgages because lower monthly payments can improve their cash flow.

Higher monthly rental profits may provide more flexibility for:

• Property maintenance.
• Any unexpected repairs.
• Additional future investments.
• Building up financial reserves.

However, stronger cash flow should always be balanced against the need to repay the full mortgage at the end of the term.

Building equity

Repayment mortgages will automatically increase your levels of equity as the outstanding loan reduces.

Interest only mortgages rely more heavily on property value growth or future repayment plans to build long term wealth.

For some landlords, this aligns well with their investment strategy. Others prefer the certainty of gradually paying down the debt.

Why Do Many Landlords Go For Interest Only?

Interest only mortgages have traditionally been the most popular choice among Buy to Let investors for many reasons.

These include:

• Lower monthly repayments.
• They give landlords improved monthly cash flow.
• More flexibility.
• The opportunity to invest surplus income elsewhere.

For experienced investors managing multiple properties, maintaining healthy cash flow is usually one of their top priorities.

Why Would Landlords Choose a Repayment Mortgage Instead?

Repayment mortgages might appeal more to landlords who prefer greater certainty over the long term.

These benefits can include:

• Reducing outstanding debt each month.
• Building equity automatically.
• Owning the property outright at the end of the mortgage term.
• Less reliance on selling or refinancing later.

Some landlords also appreciate the reassurance of knowing that the mortgage balance is gradually reducing regardless of future property prices.

Which of These Options Costs More?

In terms of monthly repayments, repayment mortgages will usually cost a little more.

However, when considering the total amount that is to be repaid over many years, the answer will depend on many different factors, including:

• Interest rates.
• Mortgage term.
• Property value growth.
• Future refinancing.
• Your overall investment strategy.

Rather than just focusing only on monthly payments, it is very important to consider your own wider financial objectives.

It is also worth understanding whether or not Buy to Let mortgages are more expensive overall, as factors such as interest rates, fees and lender criteria can all affect the total cost of borrowing. 

What Are Lenders Considering?

Whether you choose an interest only or go for a repayment mortgage, lenders will usually be assessing:

• Expected rental income. 
• Credit history.
• Personal income, where applicable.
• Existing financial commitments.
• The property's suitability.

Some lenders might have slightly different criteria depending on the repayment method you choose.

Because  requirements vary from lender to lender, comparing products across the market is often worthwhile.

The size of your deposit will also influence the mortgage products available and the interest rates you may be offered, so it is well worth grasping a firm understanding how much deposit you need for a Buy to Let mortgage before applying. 

Are Repayment Buy-To-Let Mortgages Less Risky?

Neither mortgage is automatically better or worse than the other.

Interest only mortgages can provide excellent flexibility but do require a clear strategy for how the loan will be repaid at the end of the mortgage term.

Repayment mortgages do reduce this risk by gradually clearing the debt, although higher monthly repayments can reduce available cash flow.

The right option depends on your own financial position and your investment experience along with your future plans.

Can You Switch Later?

In some circumstances, it may be possible to switch between interest only and repayment mortgages.

Whether this is available depends on your lender and your financial circumstances along with the products available at the time.

If your investment strategy changes at any point, reviewing your mortgage could help to make sure it continues to meet your needs.

An independent mortgage broker can explain the options available and whether changing your repayment method is appropriate.

How can Vincent Burch help?

Making the right choice between an interest only and repayment Buy to Let mortgage is not always straightforward.

Every landlord will have different priorities, whether that is maximising monthly income, reducing debts or expanding a property portfolio.

Vincent Burch offers independent buy to let specific mortgage advice and can compare lenders from across the whole of the market to help identify products suited to your circumstances.

By understanding your own specific long term goals, the team can recommend mortgage solutions that support your property investment strategy while making the application process as smooth as possible.

Conclusion

When comparing Buy to Let interest only vs repayment mortgages, there is no straight answer that will suit every landlord.

Interest-only mortgages do generally offer lower monthly repayments and will improve cash flow, while repayment mortgages allow investors to gradually reduce their outstanding debt, which can provide greater certainty over the long term.

The right choice depends on your financial objectives, investment plans and personal circumstances.

If you are unsure which option is the best choice for you, the experienced advisers at Vincent Burch can explain the differences, compare products across the market and help you make an informed decision.

Frequently Asked Questions

What is the difference between an interest only and repayment Buy to Let mortgage?

An interest only mortgage requires you to only pay off the interest each month, while a repayment mortgage reduces both the interest and the original loan balance over time.

Why do landlords choose interest only mortgages?

Many landlords choose interest only mortgages because the monthly repayments are typically lower, helping improve cash flow and increase flexibility.

Is a repayment mortgage better for Buy to Let?

Not necessarily. Repayment mortgages help reduce debt over time, while interest only mortgages may suit landlords who prioritise lower monthly costs and have a clear repayment strategy.

Can I change from interest only to repayment?

Possibly. Many lenders allow borrowers to change repayment methods, although this depends on individual circumstances and the lender's criteria.

Do lenders treat interest only and repayment mortgages differently?

Some lenders apply different affordability assessments or lending criteria depending on the repayment method chosen.

Can Vincent Burch help me choose between interest only and repayment?

Yes. Vincent Burch provides independent mortgage advice and can compare products across the market, helping you choose the mortgage that best suits your financial goals and circumstances.