Mortgage & Loan Calculator

How UK mortgages work

A UK mortgage is usually a repayment mortgage — the kind this calculator models, where every payment clears some of the balance. With an interest-only mortgage the payment covers interest alone and the whole balance is still owed at the end, so you need a separate plan to repay it.

The rate is rarely fixed for the whole term. Most borrowers take a fixed-rate deal for two or five years, or a tracker that follows the Bank of England base rate. When the deal ends the loan moves to the lender's standard variable rate (SVR), which is typically higher — so most people remortgage onto a new deal every few years. The 25-year term above is really a series of shorter deals, each priced on your remaining balance and your loan-to-value (LTV): the more equity you have, the better the rates you qualify for.

Leaving a deal early usually costs an early repayment charge (ERC), and most deals cap penalty-free overpayments — see the overpayment section below. Product fees are the other cost to compare: a low rate with a large arrangement fee can cost more than a slightly higher rate with none, especially on a smaller loan.

How loan payments work

A standard repayment mortgage or loan is fully amortizing: you pay the same amount every month, and by the final payment the loan is paid off completely. Each payment covers the interest accrued on the current balance, and whatever is left reduces the principal.

The formula behind it is:

M = P × [ r(1 + r)ⁿ ] / [ (1 + r)ⁿ − 1 ]

where M is the monthly payment, P is the principal, r is the monthly interest rate (annual rate divided by 12), and n is the number of monthly payments. If the rate is zero, the payment is simply the principal divided by the number of months.

Worked example

Suppose you borrow £250,000 at 4.5% over 25 years — an illustrative loan for the United Kingdom, not a rate quote. The monthly rate is 4.5% ÷ 12 ≈ 0.3750%, and there are 300 payments. The formula gives a monthly payment of about £1,390. That single figure is where every comparison below starts.

What does 25 years of interest actually cost?

The monthly payment is what you qualify on; the total interest is what the loan costs you. They point in opposite directions, and the same £250,000 at 4.5% makes the point plainly:

• 25-year term: about £1,390 a month, roughly £416,874 paid in total — £166,874 of interest.
• 15-year term: about £1,912 a month, roughly £344,247 paid in total — £94,247 of interest.

A payment 38% higher saves £72,627 of interest. That trade — monthly cash flow against lifetime cost — is the single biggest decision in the whole mortgage, and it is the one the year-by-year breakdown above is there to make visible. Expand it and look at the first year: on the 25-year loan, only about £5,538 of your first twelve payments touches the principal.

How much does overpaying save?

Put an amount in the Monthly overpayment field. It is added to every payment and goes straight off the balance, so each later month is charged interest on a smaller sum. Your contractual payment doesn't change; the loan simply ends sooner.

On the £250,000 example, an extra £200 a month takes total interest from £166,874 to £128,416 — a saving of about £38,458, with the loan cleared 5 years 1 month early (19 years 11 months instead of 25 years).

Most UK fixed-rate deals let you overpay up to 10% of the balance each year without an early repayment charge; above that, ERCs of 1–5% of the excess are common. Check your offer document before overpaying heavily.

Before committing spare cash to the mortgage, it's worth pricing the alternative: the same £200 a month invested instead is the comparison that decides it. Roughly, overpaying wins when your mortgage rate beats the return you realistically expect after tax; investing wins when it doesn't. At 4.5% that is close enough to be worth calculating rather than assuming.

Can this tell me what I can afford?

It answers the question from the other end — it tells you what a given loan costs per month, not what loan your income supports. For that, use the mortgage affordability calculator, which applies the income multiples and stress test lenders use. Either way, start with what your pay leaves after Income Tax and National Insurance, decide what share of that you're prepared to commit to housing, then raise the loan amount here until the payment hits that ceiling.

Leave room when you do it. The payment shown here is principal and interest only; in the United Kingdom you also pay buildings insurance, and for leaseholds the service charge and ground rent. A payment that exactly fills your budget on this page is a payment you can't afford.

Tips for the United Kingdom

• Remember the extras. This shows principal and interest only — buildings insurance, and for leaseholds the service charge and ground rent come on top.
• Plan for the end of your fixed deal. Re-run this calculator at your lender's SVR to see the payment you'd move to if you did nothing.
• Compare the cost over the deal, including fees. Add the arrangement fee to the interest you'd pay during the fixed period.
• Watch your LTV band. Paying the balance down past a band threshold before you remortgage can unlock a cheaper rate.

Monthly payment on £250,000, by rate and term

Principal and interest only, repayment loan, fixed rate for the whole term. Illustrative rates, not quotes.