Mortgage repayments on a repayment loan are worked out with one formula that spreads the debt and its interest evenly across the term. Each payment covers the interest charged that month, and whatever is left over reduces the balance. Three inputs set the figure: the amount borrowed, the interest rate and the term.
Most people meet their mortgage repayments as a single number on an illustration, with no explanation of where it came from. The figure looks arbitrary, so there is no way to tell which lever to pull when it feels too high.
That gap costs money. A borrower who cannot see how the term drives the total will stretch to 35 years for a comfortable monthly figure, without seeing the extra interest that follows. Another will assume five years of payments have made a real dent in the balance.
Knowing how mortgage repayments are calculated turns that number into something you can question. This guide takes the monthly figure apart: what each payment is made of, how the term and the rate move it, how repayment compares with interest-only, and what happens when a fixed rate ends.
Mortgage repayments on a repayment loan do two jobs at once. Part of each payment pays the lender for the money you have borrowed. The rest reduces what you owe.
Nothing else is happening inside the figure. Once you can see those two parts moving, the whole calculation stops being mysterious.
Interest is charged on the balance outstanding, and it is recalculated every month. Take a £200,000 balance at 4.5%. The monthly interest is 4.5% divided by twelve, applied to £200,000, which comes to £750.
On a 25 year term the full monthly payment on that loan is £1,111.66. The £750 goes to the lender as interest. The remaining £361.66 comes off the balance, leaving £199,638 owed the following month.
Next month the interest is charged on that slightly smaller balance, so it falls a little, and the capital portion rises by the same amount. The payment stays level while its composition shifts every single month.
The payment is set by the standard annuity formula. It takes the loan amount, the monthly interest rate and the number of monthly payments, then solves for the one level payment that clears the debt exactly on the final month.
You do not need to run it by hand. Our mortgage repayment calculator applies the same arithmetic, and every lender illustration you receive has already applied it to your figures.
What matters is the consequence. Because the formula solves for a level payment, changing any one of the three inputs changes the monthly figure and the total interest at the same time, in opposite directions.
The mortgage payment is not the cost of running the house. Buildings insurance, life cover, service charges and ground rent are all separate, and none of them appear in the calculation above.
Product fees sit outside it too, unless you add one to the loan, in which case the fee becomes part of the balance and accrues interest with everything else.
How much a lender will advance in the first place is a different question again. Affordability answers that one rather than this formula, and our guide to how mortgages are calculated covers it.
Budget for the payment and the running costs as two separate lines. Borrowers who merge them tend to underestimate the second.
The level payment hides a moving target. In year one most of your money goes to the lender. By the final year almost none of it does.
This is the single most misunderstood part of how mortgage repayments work, and it explains why the early years feel unproductive.
Interest is charged on what you still owe, and at the start you owe almost everything. On that £200,000 loan at 4.5% over 25 years, the first twelve months take £13,340 from you and reduce the balance by £4,431.
The other £8,909 is interest. In percentage terms, 67% of your first year goes to the lender and 33% goes to the debt.
Nothing has gone wrong. The arithmetic simply has to work that way when the balance is at its largest.
Progress compounds quietly. By month 60 the capital portion has risen from £361.66 to £451.04. By month 120 it has reached £564.61, and the balance has fallen to £145,317.
Push on to month 240 and the monthly capital portion is £884.74 against £226.93 of interest. In the final year of the term, only 2% of what you pay is interest.
Tracking the same £200,000 loan at 4.5% over 25 years month by month shows the crossover clearly:
The tipping point falls somewhere in year nine, which is when more of your money starts going to the debt than to the lender. Every month after that works harder than the one before it.
Those figures assume no overpayments and no rate change across the whole term. The 4.5% is an illustrative figure used to show the arithmetic, not a quote and not a market average.
Five years of payments on the example above cost £66,700 and cleared £24,284 of debt. Someone selling at that point often expects far more equity from the mortgage than they have actually built.
The practical effect is on loan to value. A slow-moving balance means your LTV improves mainly through house price growth rather than through repayment, which is worth knowing before you count on dropping into a better rate band.
Overpayments attack the problem directly, because every extra pound comes straight off the balance and removes all the future interest on it. Our post on whether to overpay your mortgage sets out the rules and the allowances.
The term is the lever most borrowers reach for, and it is the one with the largest hidden cost. Spreading the same debt over more years lowers your mortgage repayments and raises the total you hand over.
Here is the same £200,000 loan at the same 4.5%, over four different terms.
| Term | Monthly payment | Total paid over the term | Total interest |
|---|---|---|---|
| 20 years | £1,265.30 | £303,671.70 | £103,671.70 |
| 25 years | £1,111.66 | £333,499.49 | £133,499.49 |
| 30 years | £1,013.37 | £364,813.42 | £164,813.42 |
| 35 years | £946.51 | £397,535.66 | £197,535.66 |
Figures computed on a £200,000 repayment mortgage at an illustrative 4.5% with no overpayments. Rates available to you will differ.
Going from 25 years to 20 adds £153.64 to the monthly payment. It removes £29,827.79 of interest.
That is the trade in its clearest form. Each month costs 14% more, and the loan costs 22% less across its life.
Affordability sets the ceiling here. A lender assesses whether you can sustain the higher payment, so a shorter term is only available if the monthly figure passes their assessment.
Running the other way, 35 years instead of 25 saves £165.15 a month and adds £64,036.17 in interest. The monthly saving is real and so is the cost of it.
Longer terms have become ordinary rather than unusual, and for many first-time buyers they are the only route to a payment that fits alongside rent-level outgoings. Treating the term as permanent is the mistake. Nothing stops you shortening it at a later remortgage once income has grown.
The middle route is to take the long term for the comfort it buys, then overpay when you can. You keep the low contractual payment as a floor and clear the debt faster in practice.
Two limits usually bind. Lenders set a maximum term, commonly 35 or 40 years, and they set a maximum age at the end of it, so a borrower in their forties will often find the term capped by retirement rather than by policy.
Income type matters as well. Where earnings are variable, lenders tend to look harder at whether the payment remains sustainable across the whole term.
Work out the borrowing figure first, then test the term against it. Our mortgage borrowing calculator gives you a starting point for the amount, and the table above shows what each term does to the payment on it.
Rate is the input you control least and feel most. A small move in the rate produces a large move in the total, because it applies to the whole balance for the whole term.
Bank Rate stood at 3.75% as at September 2026, having been set at that level on 18 December 2025 and held at the most recent decision on 30 July 2026, with the next Monetary Policy Committee announcement due on 17 September 2026, according to the Bank of England.
Bank Rate is not your mortgage rate. Lenders price their products off funding costs and competition as well as Bank Rate, so the two move together without matching.
Tracker products follow Bank Rate by a stated margin, so a change reaches them within a month or two. Fixed rates are unaffected while the fix runs, which is the whole point of them.
A fix holds your rate, and therefore your mortgage repayments, for a set period. Trackers move with Bank Rate plus a stated margin, so the payment changes when Bank Rate does. The standard variable rate is set by the lender at its own discretion, and it is where most deals land once the initial period ends.
The calculation is identical in all three cases. Only the rate you feed into it differs, and how often that rate changes.
Discounted variable rates work off the lender's own SVR rather than Bank Rate, which makes them harder to predict than a tracker. A discount of one point off an SVR that the lender can move at will is a moving target in a way that Bank Rate plus one point is not.
On the £200,000 loan over 25 years, moving from 4.5% to 5.5% raises the monthly payment from £1,111.66 to £1,228.17. That is £116.51 a month, or £1,398.12 a year.
Scale matters. The same one point move costs £87.38 a month on a £150,000 loan and £174.77 a month on a £300,000 loan.
Run the whole ladder on that £200,000 loan over 25 years and the pattern is steady. A rate of 3.5% produces mortgage repayments of £1,001.25 and an interest bill of £100,374 across the term. Move to 4.0% and the figures become £1,055.67 a month and £116,702, then 4.5% gives £1,111.66 and £133,499.
Keep climbing and 5.0% costs £1,169.18 a month and £150,754 in interest, while 5.5% costs £1,228.17 and £168,452. Each half point adds roughly £55 to the monthly figure and around £17,000 to the total.
That last number is the one worth holding on to. Half a point sounds like a rounding error on a rate sheet and is worth the price of a small car across a mortgage term. Rates shown here are illustrative points on a scale rather than products available for purchase.
Everything above assumes a repayment mortgage. On interest-only, the arithmetic behind your mortgage repayments is far simpler and the outcome is completely different.
| Repayment | Interest-only | |
|---|---|---|
| Monthly payment | £1,111.66 | £750.00 |
| What the payment covers | Interest plus capital | Interest only |
| Total paid over 25 years | £333,499 | £225,000 |
| Interest paid | £133,499 | £225,000 |
| Capital repaid | £200,000 | £0 |
| Balance owed at the end | £0 | £200,000 |
Both columns assume £200,000 at an illustrative 4.5% over 25 years, with the rate held constant throughout for comparison.
There is no formula to solve. The payment is simply the interest charged on the balance, so £200,000 at 4.5% costs £750 a month and stays at £750 for as long as the rate and the balance hold.
That is 33% less than the repayment figure, which is why interest-only looks attractive on a monthly view.
The balance never moves. Month 300 leaves you owing exactly what you owed on day one.
Repaying the capital becomes a separate job with its own plan. Lenders require evidence of a credible repayment vehicle before lending on this basis, and the acceptable options are set out in their published criteria.
Sale of the property, investments, pension lump sums and other assets are the routes generally considered. A vague intention is not one of them.
Over 25 years the interest-only route in the table costs £225,000 in interest against £133,499 on repayment, and leaves the original debt intact. The lower monthly figure is a deferral rather than a saving.
Part-and-part places some of the loan on repayment and some on interest-only. Split that £200,000 evenly and the monthly payment lands between the two columns, at roughly £931, with £100,000 clearing over the term and £100,000 outstanding at the end.
Offset arrangements work on the balance from a different angle, using savings held with the lender to reduce the interest charged. Our guide to offset mortgages explains the mechanics.
Each structure suits a particular set of circumstances, and none of them suits everyone. Which fits depends on income shape, plans for the property and what you hold elsewhere.
The largest change most borrowers see in their mortgage repayments arrives on a date they already know. A fix ends, the rate reverts, and the payment recalculates on the balance and the years remaining.
Do nothing and the loan reverts to the lender's SVR, which is typically well above the fixed rates on offer. The payment then recalculates on the outstanding balance over the remaining term.
Take the example loan five years into its 25 year term. The balance is £175,716 with 20 years left. At 4.5% the payment holds at £1,111.66. At a 7.5% reversion rate it becomes £1,415.55, an increase of £303.89 a month.
The recalculation happens on the balance and the remaining term, not the original loan. A shorter remaining term concentrates the same debt into fewer payments, which is why a rate rise late in a mortgage bites harder per point than the same rise at the start.
Two routes avoid the reversion. A product transfer moves you to a new deal with the same lender, usually with less paperwork and no new legal work. A remortgage moves the loan to a different lender, which opens the whole market.
Costs and criteria differ between the two, and so does the range of rates available. UK Finance publishes quarterly data on mortgage and remortgaging activity in its Household Finance Review for anyone wanting the market backdrop.
Neither route is automatically better. What decides it is the rates each can reach, the fees attached and whether your circumstances still fit the new lender's criteria, which is the sort of comparison our remortgage service exists to run.
Most lenders will let you reserve a new deal three to six months before the current one expires, and a reserved rate can usually be swapped if a better one appears before completion.
Leaving it to the final week removes that option and often means at least one month on the reversion rate. On the figures above, a single month on SVR costs an extra £303.89.
Diarise the end date the day the fix starts. It is the one date in a mortgage that is completely predictable.
A fixed rate fixes the rate, not the payment. Lenders recalculate the monthly figure after a change to the balance or the term, so an overpayment, a payment holiday, a change of term or an added fee will all move it.
Annual interest adjustments can shift it too, as can changes to any insurance collected alongside the mortgage.
It can, though not for the reason usually given. Where a lender permits it, paying half the monthly amount every fortnight produces 26 half payments a year, which is 13 monthly payments rather than twelve.
That extra payment behaves as an overpayment and shortens the term. The saving comes from paying more each year, not from the frequency itself. Availability varies by lender and many do not offer it at all.
On the £200,000 example at 4.5% over 25 years, adding £100 a month clears the mortgage in 21 years and 6 months rather than 25 years. Total interest falls from £133,499 to £112,358, a saving of £21,142.
Most fixed deals allow overpayments up to 10% of the balance each year without a charge. The allowance is set by your lender and stated in your offer, so read it before starting.
The first payment usually covers a longer period than a month. Interest runs from the day the money is released, and lenders collect that partial period alongside the first full payment, so the initial amount can be noticeably larger.
Your completion statement and your first mortgage statement together show how the figure was reached. Payments settle to the normal level from the second month.
Every part of the monthly figure moves for a reason:
Run your own figures, then have them checked against what you can actually borrow. We charge you nothing for advice or arrangement, because lenders pay us commission on completion and we are not tied to any lender. Book a free appointment with our mortgage team and we will build the numbers around your loan and your circumstances.
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