How mortgage repayments are worked out
A repayment mortgage charges interest on whatever you still owe, every month. Your payment is set so that it covers that month's interest and chips away at the balance, with the split shifting over time: early payments are mostly interest, later ones mostly loan. The payment itself comes from the standard amortisation formula:
P is the amount borrowed, r the monthly interest rate (the annual rate divided by 12) and n the number of monthly payments. The formula finds the one fixed payment that lands the balance on exactly zero at the end of the term.
Because interest is charged on the outstanding balance, the split inside that fixed payment shifts every month. In month one of the £200,000 example below, £750 of the £1,111.66 payment is interest and only £361.66 actually repays the loan; by the final year the proportions have almost completely reversed. That front-loading is why the balance barely seems to move in the early years, and why overpaying early has such an outsized effect.
Worked examples
The term is the quiet cost lever
Buyers usually negotiate hard on the rate and barely think about the term, yet the term often moves the total cost more. As the examples show, adding 5 years to a £200,000 loan buys you £98 a month of breathing room and charges you about £31,300 for the privilege. The reverse also holds: if you can afford a slightly higher payment, a shorter term (or a regular overpayment on the same term) removes years of interest. Rate changes matter too, of course: on the 25-year example, a rate of 5.5% instead of 4.5% would add roughly £116 a month. The deposit is the third lever: a bigger deposit lowers your loan-to-value ratio, and crossing each 5% threshold (90%, 85%, 80% and so on) usually unlocks a cheaper band of rates from the same lender.
What this calculator leaves out
Real mortgages are messier than one formula. Most UK deals fix the rate for 2 to 5 years and then revert to a variable rate, so your payment will almost certainly change during the term. Arrangement fees (often added to the loan), valuation and legal costs, and daily rather than monthly interest calculation all nudge the numbers, and buying a home also means budgeting for stamp duty on top. Use the results to compare scenarios and stress-test your budget, then get a full illustration from a lender or broker for the deal in front of you. This is guidance, not financial advice: for impartial help see gov.uk or a qualified mortgage adviser.
Frequently asked questions
What is the difference between repayment and interest-only?
A repayment mortgage clears both interest and a slice of the loan each month, so you owe nothing at the end of the term. Interest-only covers just the interest, leaving the whole loan to repay at the end. This calculator models a standard repayment mortgage.
Why does a longer term cost so much more?
Stretching the term shrinks the monthly payment but leaves the balance outstanding for longer, and interest is charged on the balance every month. Moving a £200,000 loan at 4.5% from 25 to 30 years cuts the payment by about £98 a month but adds about £31,300 of interest over the life of the loan.
Does this include fees, insurance or rate changes?
No. It assumes one constant interest rate for the whole term and ignores arrangement fees, valuation fees, buildings insurance and product switches. Most UK mortgages fix the rate for 2 to 5 years and then move to a different rate, so treat the totals as a like-for-like comparison tool.
How much can I actually borrow?
Lenders typically offer around 4 to 4.5 times household income, adjusted for outgoings, credit history and the deposit you can put down. This calculator works the other way round: it shows what a given loan would cost, which helps you sanity-check whether the payment fits your monthly budget.
Why is my lender's quote slightly different?
Lenders may charge interest daily rather than monthly, round payments differently, or add fees to the loan. Those details usually move the figure by pennies or a few pounds. Large differences normally mean a different rate, term or fee structure, so compare the full illustration.