Interest only vs capital & repayment
Should you pay just the interest each month, or chip away at the balance too? The difference affects your monthly cost, and what you owe at the end.
Written by Matt Vincent DipFA, CeMAP, CeRER, BSc · Published 25 June 2026 · Version 1.0 · 5 min readThere are two ways to structure your monthly payments, and they lead to very different outcomes.
Capital & repayment
Each month you pay the interest plus a slice of the amount you borrowed. Over the years the balance steadily falls, and at the end of the term you owe nothing, you own the property outright. This is sometimes just called "repayment".
Pros
- You actually clear the debt, you own the property at the end
- You build equity in the property every month
- You usually pay less interest in total over the life of the loan
- Lower risk if property values fall
Cons
- Higher monthly payments than interest only
- Less monthly cash flow for the business
Interest only
Each month you pay only the interest. The balance doesn't go down, so at the end of the term you still owe the full amount and need a plan to repay it, typically by selling the property, refinancing, or from other funds. Interest only is common on investment (let) properties.
Pros
- Lower monthly payments, better short-term cash flow
- On a let property, more of the rent is left over each month
- Can suit investors planning to sell or refinance later
Cons
- You still owe the full balance at the end
- You need a credible repayment strategy
- More total interest paid over time
- You don't build equity through payments
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This guide was published on 25 June 2026 (version 1.0) and reflects our understanding at that time. It is general information about commercial mortgages, not financial advice or a recommendation. Lending criteria, interest rates and tax rules change over time, so please confirm current details with a qualified advisor before acting. Reference: PL-CM-INTERESTON-v10.