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How to Calculate Mortgage Payments
Published Apr 17, 2026
A mortgage is a loan secured against property. Understanding how your monthly payment is calculated helps you compare offers, plan affordability, and make informed decisions about overpayments.
The Mortgage Payment Formula
Monthly repayment for a standard capital-and-interest (repayment) mortgage:
M = P × [r(1 + r)^n] / [(1 + r)^n − 1]
Where:
- M = Monthly payment
- P = Principal (loan amount)
- r = Monthly interest rate = annual rate ÷ 12
- n = Total number of payments = loan term in years × 12
Example: £250,000 mortgage at 4.5% annual rate over 25 years:
- r = 0.045 ÷ 12 = 0.00375
- n = 25 × 12 = 300
- M = 250,000 × [0.00375 × (1.00375)^300] ÷ [(1.00375)^300 − 1] ≈ £1,389/month
- Total paid: £416,700 → Interest paid: £166,700
Key Mortgage Components
| Component | What it means |
|---|---|
| Principal | Amount borrowed |
| Interest rate | Annual cost of borrowing, expressed as % |
| Loan term | Repayment period (typically 15–30 years) |
| LTV ratio | Loan-to-value: loan ÷ property value × 100 |
| Deposit / down payment | Upfront payment — higher deposit = lower LTV = better rates |
Fixed vs Variable Rate Mortgages
Fixed rate:
- Monthly payment stays constant for the fixed term (2, 5, or 10 years typically)
- Predictable budgeting; protection against rate rises
- Usually higher than variable rates at the start
- Early repayment charges (ERCs) often apply
Variable / tracker rate:
- Rate moves with the base rate (Bank of England, Fed Funds Rate, etc.)
- Lower initial payments possible; risk of payment increases if rates rise
- More flexibility — often no or lower ERCs
Amortisation: Interest-Heavy at the Start
Early payments are mostly interest; later payments are mostly principal. This is called negative amortisation risk with interest-only mortgages.
| Year | Balance | Interest portion | Principal portion |
|---|---|---|---|
| 1 | £250,000 | 75% | 25% |
| 10 | £183,000 | 55% | 45% |
| 20 | £89,000 | 28% | 72% |
| 25 | £0 | — | — |
(Approximate figures for the example above)
How to Reduce Total Interest Paid
- Make overpayments. Most lenders allow 10% of the balance per year without ERCs. Even £100/month extra can save tens of thousands in interest.
- Choose a shorter term. A 20-year vs 25-year mortgage at the same rate significantly reduces total interest.
- Remortgage when your fixed deal ends. Lenders' standard variable rates (SVR) are often 2–4% above their best deals.
- Increase your deposit. Moving from 10% to 25% deposit typically unlocks meaningfully lower rates.
Use the Mortgage Calculator to model different loan amounts, rates, and terms side by side.