Calculate Mortgage Repayments

How mortgage repayments work

With a repayment mortgage, each monthly payment covers the interest charged that month plus a slice of the original loan. Early payments are mostly interest; later payments are mostly capital. The formula uses compound interest to calculate a fixed monthly amount that fully repays the loan over the term.

With an interest-only mortgage, you only pay the interest each month. The original loan amount remains unchanged, and you need a separate plan to repay it at the end of the term — typically through savings, investments, or selling the property.

Why overpayments save so much

Every pound you overpay goes directly toward reducing your outstanding balance. Because interest is calculated on the remaining balance, a smaller balance means less interest in every subsequent month — the savings compound. On a typical £200,000 mortgage at 4%, overpaying just £100 per month saves over £14,000 in interest and clears the mortgage about 3 years early.

Most lenders allow overpayments of up to 10% of the outstanding balance per year without charging an early repayment charge. Check your mortgage terms before overpaying.

Understanding LTV and rates

Loan-to-value (LTV) is the proportion of the property price you borrow. A £200,000 home with a £20,000 deposit is 90% LTV. Lower LTV means less risk for the lender and significantly better rates. The biggest rate drops happen at 90%, 85%, 80%, 75% and 60% LTV. Saving a larger deposit is often the single most effective way to reduce your monthly payments.