Interest Only Commercial Mortgages

Written by Richard Wilcock | August 05, 2025

Table of contents

• What is a commercial interest only mortgage?
• Can I get an interest only commercial mortgage?
• Interest only commercial mortgage rates
• Pros and cons of interest only commercial mortgages
• What is an acceptable repayment strategy for an interest only commercial mortgage?
• How to apply for an interest only commercial mortgage

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What is a commercial interest only mortgage?

With an interest only commercial mortgage, you only initially repay the interest on your mortgage product, until the period is over (usually between one and ten years), then you will repay the principal loan amount in full. The lender will always look for a comprehensive payment strategy before agreeing to lend you the money.

Can I get an interest only commercial mortgage?

If you're a UK business owner with good credit history, you’re over the age of 18, and your business has been trading for at least 12 months, many interest only commercial mortgage lenders will consider your mortgage application. It’s important to note that lender requirements differ; that’s why it’s a good idea to compare products to find the best mortgage product for you.

Interest only commercial mortgage rates

Commercial mortgage interest rates vary, but you can expect to pay between 3.5% and 6%. The percentage you pay depends on the loan product you choose, repayment terms, loan amount, lender, and other factors like financial circumstances.

You can get a business interest-only mortgage with either variable interest rates or fixed interest rates. Which option best suits you will depend on your tolerance to risk and whether you need cash flow predictability. Use our commercial mortgage calculator, which includes interest-only repayment information, to get an understanding of mortgage costs.

Pros and cons of interest only commercial mortgages

Just like any business finance, there are advantages and disadvantages to these types of commercial mortgages.

Pros

• Free up more capital. As you’re only repaying the interest initially, you can take advantage of lower monthly repayments, which means you can invest in other areas of your business.
• Reduce corporate tax liability. Interest payments are tax deductible, and as you’re only paying monthly interest, you can lower the amount of declared taxable profit.

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Cons

• Repay the principal amount as a lump sum. Although your initial payments are lower, you do have the entirety of the principal loan to repay after the pre-agreed term, which can be daunting.
• Requires a bigger deposit. Whereas a standard commercial mortgage lender would ask for a 25% deposit, that increases to between 25% and 40% for an interest only commercial mortgage. Which is fine if you have the capital to invest, but if you don’t, there are other, more affordable business finance options available, perhaps property development finance or mezzanine finance.
• Risk of repossession. As with any mortgage product, the lender can seize the asset if you fail to make timely repayments. This puts your commercial property at risk.

What is an acceptable repayment strategy for an interest only commercial mortgage?

The lender will need to see a clear exit strategy from you before they will lend. That means they want to know how you plan to repay the mortgage amount in full after the interest only period is over.

Repayment strategies can look like this:

Remortgaging

Many business owners will refinance and take out a new mortgage, which will repay the old one. This new mortgage might be a straightforward repayment mortgage or perhaps another interest only one. What’s available to you at the time will depend on the products on offer and your circumstances.

Selling the property

Your plan might be to sell up as your interest only term comes to an end, and use the funds you generate from the sale to pay off the mortgage. This can be a risky strategy because property prices can fluctuate.

Using personal funds or other investments/assets

If you have the full mortgage amount in savings, you can simply pay the loan off using them. Or if you have other assets you can sell, or investments in stocks or shares, you can use them. The lender will need evidential proof of your plans.

How to apply for an interest only commercial mortgage

Applying for an interest only commercial mortgage is made easy with our free loan comparison tool. Using the self-serve platform to find and compare commercial mortgage providers to ensure you’re applying for the right mortgage for your specific business needs.

We work with various UK alternative finance providers offering accessible, flexible, and affordable funding solutions for SMEs. Getting a quote won’t affect your credit score.

Find and compare interest only commercial mortgage providers.

About the author

Written by Richard Wilcock

Money Writer, Director and Co-Founder

Richard is one of the Co-Founders here at Capalona and has over twenty years of experience in the marketing industry, specialising in the finance sector.

Updated: August 05, 2025
Published: August 05, 2025