How mortgage repayments are calculated
A repayment mortgage is paid off in equal monthly instalments over the term. Each payment covers that month's interest and repays a little of the capital. Early on, most of each payment is interest; as the balance shrinks, more goes towards capital. The standard formula used by lenders – and by this calculator – is:
M = P × r ÷ (1 ? (1 + r)?n)
where P is the amount borrowed, r is the monthly interest rate (annual rate ÷ 12) and n is the number of monthly payments. For example, borrowing £200,000 at 5% over 25 years gives a monthly payment of about £1,169, and total interest of roughly £150,700 over the full term if the rate never changed.
Repayment vs interest-only
- Repayment (capital and interest) – your balance reaches zero at the end of the term. Monthly payments are higher, but you own your home outright.
- Interest-only – you pay just the interest each month and still owe the full amount at the end. Payments are lower, but you need a credible plan to repay the capital, and lenders apply strict criteria. Most residential borrowers use repayment mortgages.
Loan-to-value (LTV) and why it matters
LTV is the size of your mortgage as a percentage of the property's value. A £225,000 mortgage on a £250,000 home is a 90% LTV. Lenders price their deals in LTV tiers – typically 60%, 75%, 85%, 90% and 95% – and lower LTVs usually come with lower rates because the lender's risk is smaller. Increasing your deposit enough to drop into a lower tier can reduce your rate, so the calculator shows your LTV alongside the payment.
Fixed, tracker and variable rates
Most UK mortgages start with an introductory deal lasting two, three, five or sometimes ten years:
- Fixed rate – the interest rate stays the same for the deal period, so your payment is predictable.
- Tracker – the rate moves with the Bank of England base rate plus a set margin.
- Discount and standard variable rates (SVR) – set by the lender and can change at any time. When a deal ends you typically move to the SVR unless you remortgage, which is often noticeably more expensive.
Because deals are shorter than the mortgage term, the calculator's total interest is an illustration based on one rate for the whole term. In reality, your rate will change each time you remortgage. Try a few different rates to see how sensitive your payment is – a useful stress test before you commit.
Fees and other costs
The headline rate is not the whole cost. Compare deals on the total cost over the deal period, including arrangement or product fees, valuation fees, broker fees and any cashback. A low rate with a high fee can be more expensive than a slightly higher rate with no fee, especially for smaller loans. Buyers in England and Northern Ireland may also need to pay Stamp Duty Land Tax, with separate taxes in Scotland (LBTT) and Wales (LTT).
How much can I borrow?
Lenders assess affordability using your income, outgoings, credit history and a stress test of whether you could cope if rates rose. Many lenders cap borrowing at around 4 to 4.5 times income, with some going higher for certain borrowers. A mortgage calculator helps you understand payments; an agreement in principle from a lender or broker tells you what you can actually borrow.
Ways to reduce what you pay
- Bigger deposit – lowers both the loan and potentially your rate tier.
- Shorter term – higher monthly payments but much less total interest.
- Overpayments – many fixed deals allow up to 10% a year without penalty; check your terms.
- Remortgage on time – start looking around six months before your deal ends to avoid drifting onto the SVR.
Read our guide on how to get the best mortgage rate for a step-by-step approach.
Your home may be repossessed if you do not keep up repayments on your mortgage. This calculator is for illustration only and is not a mortgage offer or advice.