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How this works
With a repayment mortgage you pay the same amount each month. Early on most of it is interest; as the balance falls, more of each payment goes towards the loan itself, until it’s cleared at the end of the term.
The calculator takes the price minus your deposit as the loan, divides the yearly rate by 12 to get a monthly rate, and finds the payment that clears the loan exactly over the term. With interest only, you pay just the monthly interest and still owe the whole loan at the end.
What it assumes
- The rate stays the same for the whole term. Most deals are fixed for two to five years and then move to a new rate.
- Arrangement fees, insurance and stamp duty are left out.
- Payments are made monthly, at the end of each month.
Worked example
A £300,000 home with a £30,000 deposit
- You borrow £270,000, which is 90% of the price, at 4.5% over 25 years.
- The payment is £1,500.75 a month. In the first month £1,012.50 of that is interest and £488.25 comes off the loan.
- Over the full term you pay £180,224 in interest, £450,224 in total.
- Stretch it to 30 years and the payment falls to £1,368.05, but interest rises to £222,498. At 5.5% over 25 years the payment would be £1,658.04.
- Interest only would be £1,012.50 a month, but after 25 years you’d have paid £303,750 in interest and still owe £270,000.
Worked out with the same maths as the calculator above.
What to do next
Common questions
Why is so much of my early payment interest?
Interest is charged on what you still owe, and at the start you owe the most. Each payment chips away at the balance, so the interest part shrinks month by month.
Is a longer term a good idea?
It lowers the monthly payment, which can make a mortgage affordable, but you pay more interest overall. Many people take a longer term and overpay when they can, which keeps some flexibility.
What happens when my fixed rate ends?
You usually move to the lender’s standard variable rate, which is often higher. Most people remortgage or switch deal a few months before the fix ends. Rerun this calculator with the new rate and the years left.
Does a bigger deposit help?
Yes, twice over. You borrow less, and lenders price their deals by loan-to-value, so a bigger deposit can also get you a lower rate.