An interest only mortgage means that each payment, which again is normally monthly, just pays of the interest of the loan. Therefore although your monthly payment will be less, at the end of the term which is also usually 25 years you are required to pay of the capital.

To pay of the capital, you are also at the same time paying into some sort of investment fund which at the end of the term will pay off the capital of the property, and if all has gone well, may be even have extra which can be used for any other purpose. However there is an element of risk that if the investment fund falls short of the amount required to pay of the capital, then you are required to make this up with other funds that you have.

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