How mortgage repayments are worked out
A repayment mortgage is paid off in equal monthly instalments over the term. Each payment covers the interest for that month plus a slice of the capital, so the balance slowly falls. Early on, most of the payment is interest; later, most is capital. The monthly figure depends on three things: the amount borrowed, the interest rate and the term.
With an interest-only mortgage you pay just the interest each month and the balance stays the same, so the monthly cost is lower but you still owe the full amount at the end. Making overpayments reduces the balance faster, cutting the total interest and shortening the term.
Worked example
A £200,000 repayment mortgage at 5% over 25 years costs about £1,169 a month, with roughly £150,700 of interest over the full term.
Fixed, variable and tracker rates
A fixed-rate mortgage locks your interest rate for a set period (often two or five years), so your payments don't change even if the Bank of England moves rates — predictable, but you're usually tied in with early-repayment charges. A tracker follows the base rate plus a set margin, so payments rise and fall with it. A lender's standard variable rate (SVR) can change at the lender's discretion and is typically the most expensive option.
Choosing your mortgage term
The term is how long you take to repay. A longer term lowers the monthly payment but means more interest overall; a shorter term costs more each month but far less in total. Many buyers pick a longer term for affordability, then overpay when they can to bring the real cost back down.
How overpayments save you money
Because interest is charged on the outstanding balance, every overpayment reduces the interest you'll pay for the rest of the term — often saving thousands and shaving years off the mortgage. Most lenders let you overpay up to 10% of the balance a year without penalty; check your deal's limit and any early-repayment charges first.
When your deal ends
When a fixed or tracker deal finishes, you're usually moved onto the lender's SVR, which can push your payments up sharply. Remortgaging to a new deal before that happens is one of the simplest ways to avoid a costly jump. When comparing deals, factor in arrangement fees too — the lowest headline rate isn't always the cheapest overall.
Frequently asked questions
How much would a £200,000 mortgage cost per month?
At 5% over 25 years, a £200,000 repayment mortgage costs about £1,169 a month. The exact figure depends on your rate and term.
What's the difference between repayment and interest-only?
With repayment you pay off interest and capital, clearing the loan by the end of the term. With interest-only you pay just the interest, so payments are lower but the full balance remains due at the end.
Do overpayments really save money?
Yes. Overpayments reduce the balance, so less interest is charged — they can save thousands and shorten your term. Check your lender's annual overpayment limit (often 10%).
What is loan to value (LTV)?
LTV is your mortgage as a percentage of the property value. A lower LTV (bigger deposit) usually unlocks better interest rates.
Is the interest rate fixed in this calculator?
You enter the rate yourself, so you can model different scenarios. Real rates depend on the lender, your LTV and credit profile.