Published 1 January 2025 · 5 min read

How to Calculate Mortgage Repayments in the UK

Buying a home is one of the biggest financial decisions most people will ever make. Understanding how mortgage repayments are calculated helps you budget accurately, compare deals, and potentially save thousands of pounds over the life of your loan.

How repayment mortgages work

With a repayment mortgage (also called a capital and interest mortgage), each monthly payment covers two things: a portion of the loan amount (the capital) and the interest charged on the outstanding balance. In the early years, most of your payment goes toward interest. As time passes and the balance decreases, more of each payment goes toward paying off the capital.

Lenders use a standard annuity formula to calculate the fixed monthly payment. The key inputs are the loan amount, the annual interest rate, and the term in months. While the formula itself involves exponents and fractions, the concept is simple — it finds the constant monthly amount that fully repays the loan with interest over the chosen term.

Interest-only mortgages

With an interest-only mortgage, your monthly payments cover only the interest on the loan. The capital balance does not decrease, meaning you must repay the full loan amount at the end of the term. Monthly payments are lower, but you need a plan — such as savings, investments, or selling the property — to repay the capital.

For example, a £200,000 interest-only mortgage at 5% would cost roughly £833 per month, compared to around £1,169 per month on a 25-year repayment basis.

What affects your monthly payment

• Interest rate — even a small rate change has a significant impact. A 0.5% increase on a £250,000 mortgage over 25 years adds roughly £70 per month.
• Mortgage term — a longer term means lower monthly payments, but you pay more interest overall. A 30-year term versus 25 years reduces monthly costs but increases total interest substantially.
• Deposit and LTV — Loan-to-Value (LTV) is the percentage of the property's value you are borrowing. A larger deposit means a lower LTV, which typically qualifies you for better interest rates. Lenders usually offer their best rates at 60% LTV or below.
• Loan amount — the more you borrow, the higher your monthly payments. This is directly proportional.

Fixed vs variable rates

A fixed-rate mortgage locks in your interest rate for a set period — commonly two or five years. Your payments stay the same regardless of changes to the Bank of England base rate. A variable-rate mortgage (tracker or SVR) moves with market rates, meaning your payments can go up or down.

Fixed rates provide certainty for budgeting, while variable rates may start lower but carry the risk of increasing.

Tips for getting a better mortgage deal

• Save a larger deposit to reduce your LTV — crossing below 80%, 75%, or 60% LTV often unlocks significantly better rates.
• Improve your credit score before applying by paying bills on time and reducing existing debt.
• Compare deals from multiple lenders — high-street banks, building societies, and online lenders all compete on rates.
• Consider using a mortgage broker, who can access deals not available directly to consumers.
• Think about overpaying — even small regular overpayments can reduce your total interest by thousands and shorten your term.

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