A repayment mortgage payment is a fixed monthly amount worked out from three things: the amount borrowed, the interest rate and the length of the term. For £250,000 at 4.5% over 25 years the payment is £1,389.58 a month, and you would pay about £166,874 in interest over the full term.
The mortgage repayment formula
The standard formula for a fixed monthly payment is:
Payment = P × r ÷ (1 − (1 + r)^−n)
- P is the amount borrowed.
- r is the monthly interest rate, which is the annual rate divided by 12.
- n is the number of monthly payments (years × 12).
Using the example above, P is £250,000, r is 0.045 ÷ 12 = 0.00375 and n is 300. That gives £1,389.58 a month. Total repaid is 300 × £1,389.58, or roughly £416,874, of which £166,874 is interest.
Why early payments are mostly interest
Each month the lender charges interest on the balance you still owe. Your payment covers that interest first and the rest reduces the balance. At the start the balance is at its highest, so interest takes the biggest share. In the first month of the example, interest is £250,000 × 0.00375 = £937.50, which leaves only about £452 to reduce the debt.
As the balance falls, the interest part shrinks and the capital part grows, even though the total payment stays the same. This is why the balance drops slowly in the early years and faster towards the end. The same effect, working in reverse, is explained in Compound interest explained, with examples.
How rate and term change the payment
Small changes to the rate or the term move the payment more than many people expect. All figures below are for a £250,000 repayment mortgage and come from the House of Calculator mortgage tool.
| Rate | Term | Monthly payment | Total interest |
|---|---|---|---|
| 4.5% | 25 years | £1,389.58 | £166,874 |
| 5.5% | 25 years | £1,535.22 | £210,566 |
| 4.5% | 30 years | £1,266.71 | £206,017 |
A longer term lowers the monthly payment but costs more in total, because you owe the money for longer. A higher rate raises both. These rates are illustrations only; your lender will quote the real rate for your deal.
Repayment versus interest-only
With a repayment mortgage you pay off the loan by the end of the term. With an interest-only mortgage you pay just the interest each month and still owe the full amount at the end, so you need a separate plan to repay it. The calculator on this page covers repayment mortgages. If you want to know what you could borrow in the first place, see How much mortgage can you afford?.
What overpaying does
Paying extra each month reduces the balance sooner, so less interest builds up. Adding £200 a month to the example mortgage would clear it in about 19 years and 11 months instead of 25 years, saving roughly £38,458 in interest, according to the calculator. Many lenders limit overpayments to 10% of the balance a year during a fixed-rate period, and some charge an early repayment fee beyond that, so check your terms first.
Remember that mortgage costs go beyond the monthly payment. Buying a home also involves tax (see Stamp Duty, LBTT and LTT explained), fees and, usually, a deposit.
Questions to ask before you choose a deal
Once you know the payment formula, a few practical questions help you compare offers properly:
- What happens when the initial fixed or discounted period ends, and what rate will you move to?
- Are there arrangement, valuation or early repayment fees, and are they added to the loan?
- How much can you overpay each year without a charge?
- Can the mortgage be moved to another property if you sell?
Fees added to the loan are charged interest too, so a deal with a lower rate and a high fee is not always cheaper. Compare the total cost over the period you expect to keep the deal, and re-run the calculator with different rates to see how sensitive your budget is.
Note: This is general information, not financial advice. The calculator assumes one fixed rate for the whole term and gives estimates. Your lender’s figures, fees and rate changes will differ.
Try the calculator
Enter your loan amount, rate and term in the Mortgage calculator to see your monthly payment and the effect of overpaying. For any other kind of borrowing, the Loan repayment works in the same way.
Open the free Mortgage calculator
Worked example 2: a £180,000 mortgage year by year
The £250,000 example above is useful, but a smaller loan shows the same pattern with figures that are easier to follow. Take £180,000 at 5% over 25 years. The monthly payment is £1,052.26, and the total interest over the full term is about £135,679.
| Point in the term | Interest in that month | Capital repaid in that month | Balance left (approx.) |
|---|---|---|---|
| Month 1 | £750.00 | £302.26 | £179,698 |
| End of year 1 | £735.85 | £316.41 | £176,289 |
| End of year 5 | £665.96 | £386.30 | £159,444 |
| End of year 10 | £556.50 | £495.76 | £133,064 |
| End of year 15 | £416.02 | £636.24 | £99,209 |
These rows come from working through the loan month by month by hand, using the formula above. Two things stand out. First, after five years of payments you have paid about £63,000 in total but the balance has only fallen from £180,000 to about £159,400, because roughly £42,600 of what you paid was interest. Second, the interest and capital shares cross over at around year 11. This is normal for a repayment mortgage and is not a sign that anything has gone wrong.
It also explains why switching lender or remortgaging early in the term can feel as if you have made little progress: you have, but most of it has gone on interest rather than reducing the debt.
Step-by-step: how to work out a payment by hand
You do not need a spreadsheet to check a quote. For £180,000 at 5% over 25 years:
- Find the monthly rate. 5% ÷ 12 = 0.4167% a month, or 0.0041667 as a decimal.
- Find the number of payments. 25 years × 12 = 300.
- Raise (1 + r) to the power of n. 1.0041667 to the power 300 is about 3.4814.
- Work out the divisor. 1 − (1 ÷ 3.4814) = 1 − 0.2872 = 0.7128.
- Multiply the loan by r. £180,000 × 0.0041667 = £750.
- Divide. £750 ÷ 0.7128 = about £1,052.
The result matches the calculator to the nearest pound. The small difference is rounding in steps 3 and 4. Lenders use the same method, though their illustrations may include fees and a different compounding convention, so always rely on the official mortgage illustration for the real figure.
Repayment, interest-only and overpayments compared
The same £180,000 loan at 5% over 25 years behaves very differently depending on how you repay it. All figures are from the House of Calculator mortgage tool.
| Option | Monthly payment | What happens |
|---|---|---|
| Repayment | £1,052.26 | Loan cleared at 25 years; total interest about £135,679 |
| Interest-only | £750.00 | Interest of £225,000 over the term, and the full £180,000 is still owed at the end |
| Repayment plus £100 a month extra | £1,152.26 | Cleared in 21 years 2 months; about £24,045 less interest |
| Repayment plus a one-off £10,000 overpayment now | £1,052.26 | Cleared in 22 years 5 months; about £22,681 less interest |
A one-off £10,000 payment made on day one saves almost as much interest as £100 a month for the whole term, because money paid early removes the interest that would have been charged on it for the longest time. That said, a lump sum may breach your lender’s overpayment allowance, so check before sending it. Our guide to Compound interest explained, with examples explains why timing matters so much.
Interest-only looks cheaper each month, but it costs more in total interest and leaves the whole debt unpaid. It only makes sense with a credible, documented plan to repay the capital.
Common mistakes to avoid
- Judging a deal by the headline rate alone. Fees, the rate you revert to and early repayment charges all change the real cost.
- Forgetting the end of the fixed period. Many people move to a higher standard variable rate if they do nothing. Diary the date and start comparing deals several months before it.
- Budgeting at today’s rate. Test your payment at a rate a few points higher. On £250,000 over 25 years, 4% costs about £1,320 a month, 5% about £1,461 and 7% about £1,767 (our calculations).
- Overpaying without checking the terms. Going over your allowance can trigger a charge.
- Treating the payment as the whole cost of owning a home. Insurance, repairs and, when you buy, Stamp Duty, LBTT and LTT explained all come on top.
When to check with a lender or adviser
The calculator assumes one fixed rate for the whole term, monthly payments and no fees. Real mortgages usually have an introductory rate followed by a new rate, and some lenders calculate interest daily. For a decision this large, use the lender’s personalised illustration, compare the overall cost for the period you expect to keep the deal, and consider speaking to a regulated mortgage adviser. If you are struggling to pay, contact your lender early; they have processes to help, and free debt advice is available from services such as MoneyHelper.
Frequently asked questions
How is a monthly mortgage payment worked out?
It uses the formula P × r ÷ (1 − (1 + r)^−n), where r is the annual rate divided by 12 and n is the number of months. The result is a fixed payment that clears the loan exactly at the end of the term.
Why does my balance fall so slowly at first?
Interest is charged on the outstanding balance, which is largest at the start. Most of your early payments therefore go on interest, and the share going to the capital grows over time.
Does a longer mortgage term save money?
It lowers the monthly payment but increases the total interest. For £250,000 at 4.5%, 30 years costs about £1,267 a month against £1,390 for 25 years, but about £39,000 more in total interest.
Can I pay off my mortgage early?
Often yes, but many fixed deals cap penalty-free overpayments, commonly at 10% of the balance a year. Check your mortgage terms or ask your lender before overpaying.
What is the difference between a repayment and an interest-only mortgage?
With a repayment mortgage, each payment covers interest and part of the loan, so the debt is cleared by the end of the term. With interest-only you pay just the interest and still owe the full amount at the end, so you need a separate way to repay it.
Is it better to overpay or to save the money?
It depends on the mortgage rate, the interest you could earn on savings and whether you might need the cash. Overpaying saves interest at your mortgage rate but locks the money into the property, so keep an emergency fund first.
What happens to my payment when my fixed rate ends?
Unless you choose a new deal, you normally move to your lender’s standard variable rate, which is often higher. Your payment is then recalculated on the remaining balance and term, so compare new deals well before the end date.
Do mortgage payments include insurance and tax?
Not usually. The payment covers interest and capital only. Buildings insurance, any life cover and council tax are separate costs that you pay on top.