How UK mortgage repayments work

A UK mortgage is a loan secured against a property, repaid in monthly instalments over a term of (usually) 25 to 30 years. Each monthly payment is split between interest on the outstanding balance andprincipal — the actual amount borrowed. In the early years almost all of each payment is interest; in the final years almost all of it is principal. This is called amortisation.

The amortisation formula

The standard formula for the monthly payment on a capital-repayment mortgage is:

M = P × r(1+r)ⁿ / ((1+r)ⁿ − 1)

Where:

• M = monthly payment
• P = principal (property price minus deposit)
• r = monthly interest rate (annual rate ÷ 12, expressed as a decimal)
• n = total number of monthly payments (term in years × 12)

Worked example — £300,000 purchase, £30,000 deposit, 4.5%, 25 years

Principal P = £270,000. Annual rate 4.5%, so monthly rater = 0.00375. Term 25 years, so n = 300payments. Plugging in:

M = 270,000 × 0.00375 × (1.00375)³⁰⁰ / ((1.00375)³⁰⁰ − 1) = 270,000 × 0.00375 × 3.074 / 2.074 ≈ £1,501/month.

Over 25 years you will pay £1,501 × 300 = £450,300 in total. Subtract the £270,000 principal and you have paid £180,300 in interest— roughly two-thirds of the original loan amount, on top of the loan itself. This is why the interest rate matters so much: a 1% higher rate can add £50,000+ to the total cost.

UK mortgage rate types

UK mortgages come in three main flavours during their initial period (usually 2 to 5 years), after which most revert to the lender's Standard Variable Rate (SVR):

Fixed rate

The interest rate is locked for a set period — typically 2, 3, 5, or 10 years. Your monthly payment stays exactly the same regardless of what the Bank of England does. At the end of the fixed period you either remortgage to a new deal or fall onto the lender's SVR (usually 2-4% higher).

Tracker

The rate moves in line with the Bank of England base rate plus a set margin — for example "base + 1.5%". If the base rate goes up 0.25%, your monthly payment goes up proportionally the following month. Trackers are usually cheapest when rates are stable or falling.

Discount

The rate is a set discount off the lender's SVR — for example "SVR minus 1.5%". The lender can change the SVR at any time, so discount mortgages give the lender more discretion than trackers. Discount mortgages tend to be cheapest when the lender wants to compete aggressively for new business.

Deposit, LTV, and why they matter

Your loan-to-value (LTV) ratio is the mortgage amount divided by the property price. A £270,000 mortgage on a £300,000 property is 90% LTV. UK mortgage pricing is tiered by LTV band — the cheapest deals are reserved for LTVs of 60% or below, with notable step changes at 75%, 80%, 85%, 90%, and 95%. A bigger deposit unlocks cheaper rates, which compounds the saving over a 25-year term.

Overpayments — the cheapest way to save tens of thousands

Because mortgage interest is charged every month on the outstanding balance, any extra payment you make reduces the balance on which future interest is calculated. This compounds: the earlier you overpay, the bigger the saving.

On a £270,000 mortgage at 4.5% over 25 years, overpaying £100/month saves approximately £22,000 in interest and clears the mortgage about 4 years early. Most UK mortgages allow overpayments of up to 10% of the balance per year without early repayment charges — always check your specific deal terms before committing.

What this calculator does not cover

This calculator models a single fixed-rate period over the full mortgage term. In practice most UK mortgages revert to SVR after the initial deal period ends, which would change the payments. We also do not model: mortgage arrangement fees, product fees, valuation fees, early repayment charges, Help-to-Buy equity loans, shared ownership, Islamic mortgages, or interest-only mortgages. For these, consult an FCA-regulated mortgage adviser.

Bank of England base rate sourced frombankofengland.co.uk; see our methodology page for the full source list and update cadence.