An Interest Only mortgage is quite simply what it says it is! During the term of the mortgage, the repayments are made up purely of the cost of borrowing. For example, if you borrow £200,000 over 25 years, at the end of the 25 years you’ll still owe £200,000. The payments that you’ll have made to the lender are the cost of that borrowing.
Although this type of mortgage isn’t so easy to come by now, it is important to ensure that there is a repayment vehicle in place alongside the mortgage to be able to repay the outstanding amount when the term comes to an end.