Interest Only vs Repayment Buy to Let: Which Is Better
Interest only versus repayment for buy to let is a cash flow question against an equity question. Interest only gives the lowest monthly payment and the highest cash flow, but the loan never falls. Repayment costs more each month, but the debt shrinks and the property becomes fully yours over time.
Compare the same £180,000 loan at 5.5% over 25 years. Repayment costs about £1,105 a month and about £151,600 of total interest, ending at zero. Interest only costs about £825 a month and about £247,500 of total interest, ending with £180,000 still owed. Repayment costs about £280 more a month but saves roughly £96,000 of interest and removes the refinancing risk.
Most landlords choose interest only for cash flow, then rely on property growth and remortgaging. That works while values rise and lending stays available, but it concentrates risk at the end of the term. A middle path is to pay interest only and make voluntary overpayments when cash flow allows, if the product permits them.
- Interest only: lower payment, higher total interest, debt remains.
- Repayment: higher payment, lower total interest, debt cleared.
- Voluntary overpayments can offer a middle path.
Try the free calculator to work out your own figures in seconds.