As the name suggests this type of mortgage repayment means you only pay the lender the interest due on the loan. As you are not making any capital payments the amount you borrow on the outset will be the same at the end of the term. It is your responsibility to maintain some investment vehicle or plan which will repay the debt at the end of the term. This could be an endowment plan, pension or ISA for example. It’s up to you which method you use but ensuring that the loan is repaid on time will be your responsibility and not the lender’s.

If the investment has done better than expected then the borrower will receive the surplus funds. However, if the policy does not cover the loan amount they will be called upon to cover the short-fall.

The benefits of the inertest only repayment method is that it keeps your instalments low and gives you the flexibility to invest in a range of savings plans, some of which can have tax advantages (e.g. Individual Savings Accounts (ISA's) or Pensions). However, as no repayment of capital is included in the monthly instalments you will need to make provision for this. There is no guarantee that your investment or savings plan will cover the mortgage repayment when it becomes due. You will need to monitor this carefully and increase your savings early if required.