How Mortgage Repayments Are Calculated
When you take out a repayment mortgage, your monthly payment is calculated using the standard amortisation formula. Each month, part of your payment covers the interest charged on the outstanding balance, and the remainder reduces the loan itself (the principal).
In the early years of a mortgage, the vast majority of each payment goes towards interest — because the balance is at its highest. As the balance falls over time, less of each payment is interest, and more is capital repayment. This is why making overpayments early in your mortgage term saves you disproportionately more interest.
The Amortisation Formula
The monthly payment M for a repayment mortgage is calculated as:
M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]
Where P is the loan principal, r is the monthly interest rate (annual rate ÷ 12), and n is the total number of monthly payments (term in years × 12).
Interest-Only Mortgages
With an interest-only mortgage, your monthly payment only covers the interest charged. The loan balance does not reduce — you remain liable for the full principal at the end of the term. Monthly interest is simply Principal × (Annual Rate ÷ 12). You will need a separate repayment vehicle (such as an ISA or endowment policy) to repay the capital at the end.
How the Amortisation Schedule Works
The amortisation table above shows a year-by-year breakdown of your mortgage. Each row shows how much of your payments went to interest versus capital, and what your outstanding balance is at the end of each year. As you progress through the term, you will see the interest portion fall and the capital portion rise.
Tip: Overpayments can save you thousands
Even a modest monthly overpayment of £100–£200 can shave years off your mortgage and save tens of thousands in interest. Because early payments reduce the principal faster, less interest accrues in subsequent months — the effect compounds over time. Many lenders allow up to 10% of the outstanding balance as overpayments per year without penalty charges.
Understanding Loan-to-Value (LTV)
LTV is the ratio of your mortgage loan to the property value, expressed as a percentage. A lower LTV generally means access to better interest rates, as the lender faces less risk. Key LTV thresholds in the UK are 60%, 75%, 85%, 90% and 95%. Most high-street lenders require at least a 5% deposit (95% LTV maximum).
Worked Examples
These examples show real-world mortgage scenarios using the same amortisation formula as the calculator above.
First-Time Buyer — £200,000 at 4.5%, 25 years
Deposit£20,000 (10% — 90% LTV)
Monthly repayment£1,111
Total interest£133,300
Total repaid£333,300
Home Mover — £350,000 at 4.2%, 20 years
LTV75%
Monthly repayment£2,153
Total interest£166,720
Total repaid£516,720
Overpayment Benefit — £300,000 at 4.5%, 25 years + £200/month extra
Base monthly payment£1,667
Interest saving£31,450
Paid off early by4 years 2 months
Buy-to-Let — £250,000 at 5.5%, Interest Only, 25 years
Deposit£62,500 (25% — 75% LTV)
Monthly interest£859
Rental income needed£1,074–£1,246/mo (125–145%)
Capital owed at end£187,500
Remortgage — £400,000 property, £260,000 balance, 4.0%, 20 years
Equity (deposit)£140,000 (35% — 65% LTV)
Monthly repayment£1,576
Total interest£118,240
LTV tierExcellent (≤60%) — best rates
Right-to-Buy — £180,000 property, £72,000 discount (40%)
Purchase price£108,000
Deposit (5%)£5,400
Monthly repayment£570
Instant equity£77,400 (71.7% of market value)
UK Mortgage Rate Context 2025/26
How rate and term affect monthly payments and total interest on a £200,000 repayment mortgage.
| Term |
Rate |
Monthly (£200k) |
Total Interest (£200k) |
| 25 years | 4.0% | £1,056 | £116,800 |
| 25 years | 4.5% | £1,111 | £133,300 |
| 25 years | 5.0% | £1,169 | £150,700 |
| 20 years | 4.0% | £1,212 | £90,880 |
| 20 years | 4.5% | £1,267 | £104,080 |
| 20 years | 5.0% | £1,320 | £117,600 |
Typical Rates by LTV Band
| LTV Band |
Rate Tier |
Typical Availability |
| 60% LTV or below | Lowest rates available | Widest choice of lenders |
| 75% LTV | Mid-tier rates | Strong availability |
| 85% LTV | Higher rates | Most high-street lenders |
| 90% LTV or above | Highest rates | Fewer lenders; stricter criteria |
Important Considerations
Rate Type Matters
This calculator uses a fixed interest rate throughout the term. Most mortgages start on a 2 or 5 year fixed rate, then revert to the lender's Standard Variable Rate (SVR), which is typically 1–3% higher. Recalculate and remortgage before your fixed deal ends to avoid the SVR.
APRC vs Interest Rate
The Annual Percentage Rate of Charge (APRC) includes fees such as arrangement and valuation costs. A low advertised interest rate with high arrangement fees may cost more over the deal period than a slightly higher rate with no fees. Always compare on APRC when shopping.
Affordability Stress Test
Lenders assess affordability at a rate typically 3% above the reversion rate, not your current deal rate. This calculator shows what you will pay month to month — it does not replicate a lender's affordability assessment. Speak to a whole-of-market broker for an accurate picture of how much you can borrow.
Stamp Duty
From April 2025, first-time buyers pay 0% Stamp Duty Land Tax on the first £300,000 and 5% on the portion between £300,001 and £500,000. Home movers pay on a different sliding scale. Stamp duty is a significant upfront cost — factor it into your total purchase budget alongside deposit, legal fees and survey costs.
Buy-to-Let: Section 24 Tax Changes
Since April 2020, landlords can no longer deduct mortgage interest from rental income before calculating tax. Instead, you receive a 20% tax credit on mortgage interest paid. Higher-rate (40%) and additional-rate (45%) taxpayers pay significantly more tax on rental income than before Section 24. Factor this into your BTL yield calculations.
Interest-Only: Repayment Strategy Required
If you choose an interest-only mortgage, you must have a credible plan to repay the full capital at the end of the term. Lenders will ask about your repayment vehicle — ISA, pension, sale of another property, or savings. Without a plan, you risk losing your home when the term ends and the full balance becomes due.
Buy-to-Let: Rental Coverage Ratio
Most BTL lenders require rental income to cover 125–145% of the monthly mortgage payment at a stress-tested rate (typically 5.5%). If your expected rent is £1,000/month, your mortgage payment cannot exceed £690–£800/month at the stress rate. Lenders may also require you to earn at least £25,000/year from other sources.
Right-to-Buy: Discount Repayment
If you sell a Right-to-Buy property within 5 years, you must repay some or all of the discount. In year 1 you repay 100%, reducing by 20% each year. After 5 years, no repayment is due. The repayment is based on the percentage discount applied to the current market value at the time of sale — not the original discount amount.
Government Help & Schemes
Several government-backed schemes exist to help buyers get on or move up the property ladder. Eligibility and availability vary by nation and region.
Lifetime ISA (LISA)
Save up to £4,000/year and the government adds a 25% bonus (up to £1,000/year). Can be used towards a first home worth up to £450,000. Must be aged 18–39 to open. Withdraw for non-property use before age 60 and you lose the bonus plus a 6.25% penalty.
First-time buyers
Shared Ownership
Buy a share of a home (25–75%) and pay rent on the rest to a housing association. You can "staircase" (buy more shares) over time until you own it outright. Available to households earning under £80,000 (£90,000 in London). Minimum deposit is typically 5% of your share, not the full property value.
First-time buyers
First Homes Scheme
New-build homes sold to first-time buyers at a minimum 30% discount to market value. The discount stays with the property — future buyers must also be eligible first-time buyers. Local councils may add extra eligibility criteria such as local connection or key worker status. Price cap is £250,000 (£420,000 in London) after discount.
First-time buyers
Right to Buy
Council tenants in England can buy their home at a significant discount. Houses: up to £96,000 off (£127,900 in London). Flats: up to 70% of market value. You must have been a public sector tenant for at least 3 years. The discount increases with length of tenancy. Must repay discount if sold within 5 years.
Council tenants
Right to Acquire
Housing association tenants in England can buy their home at a discount of £9,000–£16,000 depending on region. You must have been a public sector tenant for at least 3 years. Not all housing association properties are eligible — check with your landlord. Similar discount repayment rules to Right to Buy apply.
HA tenants
Mortgage Guarantee Scheme
The government guarantees a portion of 91–95% LTV mortgages, encouraging lenders to offer high-LTV products. Available on properties up to £600,000. Open to all buyers (not just FTBs) for a primary residence — not available for buy-to-let or second homes. The buyer does not apply directly — lenders choose to participate.
All buyers
Not sure which mortgage is right for you?
A whole-of-market mortgage broker compares deals from every UK lender — not just the ones on the high street. They handle the paperwork, negotiate rates, and guide you through the application process. Many charge no upfront fee (they are paid by the lender on completion).
- Access to 90+ lenders
- Exclusive broker-only rates
- Free initial consultation
- Handles all the paperwork
- FCA regulated advice
- No obligation to proceed
This is general guidance, not a recommendation. Always compare your options. Your home may be repossessed if you do not keep up repayments on your mortgage.
Frequently Asked Questions
How is my monthly mortgage payment calculated?
Your monthly payment is calculated using the standard amortisation formula: M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]. Each payment covers the interest due on the remaining balance plus a capital repayment, sized so that the balance reaches exactly zero at the end of the term. In early years, more of each payment is interest; by the end, almost all of it is capital.
What is the difference between repayment and interest-only mortgages?
With a repayment mortgage, each monthly payment reduces the outstanding balance as well as covering interest. At the end of the term you own the property outright. With an interest-only mortgage, monthly payments cover only the interest — the capital balance is unchanged throughout the term and must be repaid in full at the end, usually through a separate investment or savings vehicle such as an ISA or pension.
How much does overpaying save?
Overpayments reduce the outstanding principal immediately, which reduces the interest charged in every subsequent month. Because mortgages are front-loaded with interest, overpaying in year 1 saves disproportionately more than the same overpayment in year 20. A £200/month overpayment on a £300,000 mortgage at 4.5% saves around £31,450 in interest and clears the mortgage over 4 years early.
What happens when my fixed rate ends?
When a fixed-rate deal expires you automatically revert to the lender's Standard Variable Rate (SVR), which is typically 1–3% higher than your fixed rate. This can significantly increase your monthly payments. Always start remortgaging 3–6 months before the end of your fixed term to avoid landing on the SVR.
What is LTV and why does it matter?
LTV (Loan-to-Value) is the ratio of your mortgage to the property value, expressed as a percentage. A lower LTV means the lender is taking on less risk, which typically means lower interest rates. The 60% LTV tier usually gets the best available deals. Each time you cross a key threshold — 90%, 85%, 75%, 60% — you may qualify for a noticeably cheaper rate.
How do I work out what I can borrow?
Most UK mortgage lenders will lend up to 4–4.5 times your annual income, though this varies. Lenders also apply a stress test to ensure you could still afford payments if rates rose by around 3%. Joint applications combine incomes. For the most accurate assessment, speak to a whole-of-market mortgage broker who can access every lender.
Does overpaying by £100/month make a big difference?
Yes — on a £200,000 mortgage at 4.5% over 25 years, overpaying by £100/month saves approximately £18,000 in interest and cuts around 2.5 years off the term. The earlier in the mortgage you start overpaying, the greater the compounding effect. Check your mortgage terms first — most lenders allow up to 10% of the outstanding balance as overpayments per year without an early repayment charge.
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