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
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.