Published 1 January 2025 · 5 min read

How to Calculate Mortgage Repayments in the UK

We've all been there. It's 11pm, you're scrolling through Rightmove in bed, and you've just found a house that looks absolutely perfect. Three bedrooms, decent garden, right near the station. But you've got no idea whether you can actually afford the monthly payments — and you're definitely not ringing a mortgage broker at this hour.

The repayment formula in plain English

Right, let's tackle the formula first, because it's good to know what's going on behind the scenes. With a repayment mortgage (sometimes called capital and interest), every monthly payment covers two things: a chunk off the amount you borrowed (the capital) and the interest the lender's charging you on what's left.

Here's the thing that catches most people out — in the early years, most of your payment goes towards interest, not the actual loan. It feels a bit rubbish when you realise that, but as the balance drops over time, more of each payment chips away at the capital. By the end, you're mostly paying off the house rather than lining the bank's pockets.

The formula itself involves exponents and fractions that'll make your eyes water, but the idea is dead simple: it works out the fixed monthly amount that'll clear your entire loan, with interest, over the term you've chosen. You take the loan amount, the annual interest rate (divided by 12 for monthly), and the number of months in your term, and the formula spits out one number — your monthly payment.

Let's break down a real example

Say you're borrowing £200,000 at 4.5% interest over 25 years. That's 300 monthly payments. Your monthly repayment would come out at roughly £1,111. Over the full 25 years, you'd pay back about £333,400 in total — meaning the interest alone costs you around £133,400. That's a lot of money, which is exactly why even a small rate difference matters so much.

Drop that rate to 4% and your monthly payment falls to about £1,056 — saving you £55 a month, or nearly £16,500 over the full term. That's a decent holiday every year, just from a half-percent rate difference.

What's LTV and why does it matter?

LTV stands for Loan-to-Value, and it's basically the percentage of the property's price that you're borrowing. If you're buying a £250,000 house with a £50,000 deposit, you need a £200,000 mortgage — that's 80% LTV.

Why should you care? Because the lower your LTV, the better the rates you'll get. Lenders see you as less risky when you've got more skin in the game. The magic thresholds tend to be 90%, 85%, 80%, 75%, and 60% — drop below each one and you'll typically unlock better deals. If you can scrape together enough deposit to get below 75% or even 60% LTV, you'll be offered noticeably cheaper rates.

Repayment vs interest-only (be careful here)

With a repayment mortgage, you're gradually paying off the loan. With interest-only, you're just paying the interest each month — the amount you owe stays exactly the same for the entire term. Yes, the monthly payments are lower. A £200,000 interest-only mortgage at 5% costs roughly £833 a month, compared to about £1,169 on repayment. Looks tempting, right?

Here's why we think interest-only is genuinely risky for most people: at the end of your mortgage term, you still owe the full £200,000. You need a solid plan to pay that off — savings, investments, or selling the property. Too many people took out interest-only mortgages years ago without a proper repayment plan, and they're now facing some very difficult conversations. Unless you've got a cast-iron strategy for repaying the capital, a repayment mortgage is almost always the safer choice.

What actually affects your monthly payment

• Interest rate — even a small rate change hits hard. A 0.5% increase on a £250,000 mortgage over 25 years adds roughly £70 per month. That's £840 a year you weren't expecting to pay.
• Mortgage term — stretching from 25 to 30 years brings your monthly payments down, but you'll pay significantly more interest over the life of the loan. It's a trade-off, and it's worth running both through a calculator to see the difference.
• Your deposit (and LTV) — as we covered above, a bigger deposit means a lower LTV, which means better rates. It really is worth saving that extra few thousand if you can.
• How much you borrow — obvious, but worth saying: the more you borrow, the more you pay each month. It's directly proportional.

Fixed vs variable rates

A fixed-rate mortgage locks your interest rate for a set period — usually two or five years. Your payments stay the same no matter what happens to the Bank of England base rate. A variable-rate mortgage moves with market rates, so your payments can go up or down.

Fixed rates give you certainty — you know exactly what you're paying each month, which makes budgeting much easier. Variable rates might start lower, but they carry the risk of going up. It's a bit like choosing between a fixed-price contract and paying whatever the market decides. Most first-time buyers go fixed because they want the peace of mind, and honestly, that's not a bad shout.

Tracker mortgages follow the Bank of England base rate plus a set margin. So a tracker at "base rate + 1%" would charge 5.5% when the base rate is 4.5%. They're transparent — you always know how your rate's calculated. But if the base rate shoots up (as it did between late 2021 and mid-2023), your payments can jump quite dramatically and quite quickly.

Standard Variable Rate (SVR) is the lender's default rate, which you'll roll onto after your fixed or tracker deal expires. SVRs are almost always higher than the deals available on the market, so most people remortgage before their deal ends. If you don't, you could end up paying hundreds of pounds more per month in unnecessary interest. Set a calendar reminder for two months before your deal expires — seriously, it's worth it.

Discount rate mortgages give you a set percentage below the lender's SVR for a fixed period. So "SVR minus 1.5% for two years" means your rate moves when the SVR changes, but always stays 1.5% below it. The catch? The lender can change their SVR whenever they like, which indirectly changes your rate too.

How the Bank of England base rate affects you

The Bank of England sets the base rate to manage inflation and the economy. When it goes up, borrowing gets more expensive across the board, and mortgage rates tend to follow. When it comes down, borrowing gets cheaper — though lenders aren't always in a rush to pass the full benefit on to you. Funny how that works.

If you're on a variable rate, base rate changes hit your wallet straight away. A 0.25% increase on a £250,000 tracker mortgage adds about £33 per month — nearly £400 over a year. If you're on a fixed deal, you're shielded from changes until your deal period expires. Then you'll remortgage at whatever rates are available at the time.

When rates are rising, fixing gives you protection. When they're falling, a tracker or variable rate might save you money as rates drop. Nobody's got a crystal ball, but it's worth thinking about which direction rates seem to be heading when you're choosing your deal.

Early repayment charges — don't get caught out

Most fixed-rate and some tracker mortgages come with Early Repayment Charges (ERCs) during the deal period. These typically range from 1% to 5% of the outstanding balance. They're there to compensate the lender if you pay the mortgage off early, overpay beyond the allowed amount, or switch to another lender before the deal ends.

The good news? Most mortgages let you overpay up to 10% of the outstanding balance per year without triggering ERCs. And overpaying is genuinely one of the best things you can do. For example, overpaying just £200 per month on a £200,000 mortgage at 5% over 25 years could save you over £30,000 in interest and knock nearly 5 years off your term. That's massive.

Before you start overpaying, check your mortgage terms to see how much is allowed and whether overpayments reduce your monthly payment or shorten your term. Some lenders give you the choice; others apply them to the term by default.

Common mistakes people make

• Forgetting the extra costs — this is the big one. Your mortgage payment isn't the only cost of buying a house. Stamp duty, solicitor fees, surveys, valuation fees, moving costs — they add up fast. On a £300,000 house, you might be looking at £10,000-£15,000 in costs on top of your deposit. Budget for these from the start or you'll get a nasty surprise.
• Only looking at the monthly payment — a longer term means lower monthly payments, but you'll pay far more interest overall. Always look at the total cost, not just the monthly figure.
• Not remortgaging when your deal ends — letting yourself roll onto your lender's SVR is like volunteering to pay more. Set a reminder and sort a new deal before your current one expires.
• Borrowing the maximum you're offered — just because a lender says you can borrow £350,000 doesn't mean you should. Leave yourself some breathing room for rate rises, unexpected costs, and actually being able to enjoy your life.
• Ignoring the impact of rate changes — always ask yourself: "Could I still afford this if rates went up by 2%?" If the answer's no, you might be stretching too far.

Tips for getting a better mortgage deal

• Save a bigger deposit to reduce your LTV — dropping below 80%, 75%, or 60% can unlock noticeably better rates.
• Sort your credit score before you apply. Pay bills on time, reduce existing debt, and check your credit report for errors.
• Compare deals from multiple lenders — high-street banks, building societies, and online lenders all compete on rates, and the best deal varies constantly.
• Consider using a mortgage broker. They can access deals you won't find directly, and a good one will save you far more than they cost.
• Think about overpaying — even small regular overpayments can save you thousands in interest and take years off your term.
• Don't just focus on the rate. Look at fees too — a low-rate mortgage with a £2,000 product fee might work out more expensive than a slightly higher rate with no fee, especially on smaller loans.

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