Guide · 9 min read

How mortgage repayments are calculated.

Updated May 2026

Take out a £250,000 repayment mortgage at 4.5% over 25 years. Your monthly payment is £1,389. Every lender on the market uses exactly the same formula to arrive at that number. Here's how it works.

The formula

Every repayment mortgage payment is calculated using the standard mortgage amortisation formula:

Where P is the loan amount, r is the monthly interest rate (annual rate divided by 12), and n is the total number of monthly payments. The formula produces a fixed monthly payment that fully repays the loan over exactly n months — not a penny more, not a penny less, assuming you never miss a payment and the rate never changes.

For our example — £250,000 at 4.5% over 25 years — the inputs are: P = £250,000, r = 0.045 ÷ 12 = 0.00375, n = 300. Plugging in gives a monthly payment of £1,389. The calculator on this site uses this same formula for every result it produces.

Why the early years feel slow

Each month, the lender charges interest on whatever balance is still outstanding. The rest of your payment reduces the balance. Early on the balance is high, so most of the payment is interest. As the balance falls, the interest portion shrinks and the capital portion grows.

For a £250,000 mortgage at 4.5% over 25 years, the split looks like this across the life of the loan:

• Month 1: ~£938 interest, ~£451 capital.
• Year 5 (month 60): roughly £870 interest, £519 capital.
• Year 13 (the balance crossover): roughly equal split.
• Year 25, final year: mostly capital, only a few pounds of interest on the shrinking balance.

Total interest over the full 25-year term at 4.5%: approximately £166,700 — about two-thirds of the original loan, paid back on top. This is not a mistake or a hidden fee. It is the mathematical cost of borrowing money over a long period.

Worked example: how rate changes affect payment

The same £250,000 loan over 25 years at three different rates illustrates how sensitive monthly payments are to the interest rate:

Moving from 3% to 4.5% adds £204 per month and £61,200 in total interest over the life of the loan. Moving from 4.5% to 5.5% adds a further £141 per month and £42,300 more interest. Shopping for the best available rate at each remortgage point is one of the highest-return financial decisions most homeowners will ever make. The difference compounds over 25 years.

How term length changes the picture

Extending the term reduces the monthly payment but substantially increases total interest. On the same £250,000 at 4.5%:

A 35-year term versus a 20-year term saves £393 per month but costs an extra £119,700 in total interest. The longer term makes sense when cash flow is genuinely tight; it is an expensive default when it isn't. Some lenders allow you to overpay to shorten the effective term later, which gives you the lower initial payment with the option to accelerate repayment when income improves.

Repayment vs interest-only

A repayment (capital and interest) mortgage is the standard for residential purchases. Each payment reduces the balance, so the debt is fully cleared at the end of the term. An interest-only mortgage charges only the monthly interest — the original capital remains outstanding throughout and falls due in full at the end.

For a £250,000 interest-only mortgage at 4.5%, the monthly payment is just £938 — the interest charge alone. That is £451 less per month than a repayment mortgage at the same rate and term. But at the end of 25 years, you still owe £250,000. Interest-only can make sense for buy-to-let investors who plan to sell the property and for borrowers with a credible repayment vehicle (ISA, pension, sale of another asset). For most residential buyers, a repayment mortgage is the right structure because it builds equity and guarantees the debt is cleared.

What happens at remortgage time

Most UK mortgage deals are fixed for 2, 3, or 5 years. When the fixed period ends, the mortgage automatically switches to the lender's Standard Variable Rate (SVR), which is almost always significantly higher than competitive fixed-rate deals. The monthly payment jumps noticeably at this point — a borrower on a 4.5% fix could find themselves on an SVR of 7% or more.

Remortgaging to a new deal resets the calculation: the outstanding balance becomes the new P, the remaining term becomes the new n, and the new rate becomes r. If you have been repaying for 5 years, your outstanding balance will be lower than when you started, which means the new payment is calculated on a smaller loan — partially offsetting any rate increase on the new deal.

Overpayments and the compounding benefit

Most fixed-rate mortgages allow overpayments of up to 10% of the outstanding balance per year without penalty. Because overpayments come straight off the principal, they reduce the balance on which future interest is charged. The earlier in the term an overpayment is made, the more compounding benefit it generates — reducing interest accrual for every remaining month of the mortgage.

On a £250,000 / 4.5% / 25-year mortgage, overpaying by £200 per month from the start reduces the total interest paid by approximately £30,000 and cuts roughly three years from the term. That is a substantial return for money that might otherwise sit in a low-interest savings account.

What the calculator shows

The repayment calculator uses the standard mortgage payment formula and shows the monthly payment broken down into interest and capital components. The amortisation panel makes the interest-heavy early years visible: in year one the bar is mostly interest; by the final year it is almost entirely capital. Adjusting the rate, term, or loan amount updates the calculation instantly, making it easy to compare scenarios side by side before you speak to a lender or broker.

Try the calculator: Monthly repayment calculator →