How Mortgage Payments Are Calculated

요약

A mortgage payment calculator takes four inputs — loan amount, interest rate, term length, and payment type — and returns the monthly payment you’ll owe your lender. For repayment mortgages, each payment covers both interest and a portion of the principal, so the loan is fully repaid by the end of the term. For interest-only mortgages, you pay only the interest each month and must repay the full principal as a lump sum at the end.

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Repayment mortgages

The standard amortization formula calculates a fixed monthly payment that fully repays the loan over the term. Early in the term, most of each payment goes toward interest. As the principal balance decreases, more goes toward repaying capital. The monthly amount stays the same throughout — what changes is the interest/principal split within each payment.

Interest-only mortgages

The monthly payment is simply the interest due on the full loan balance. The principal never decreases, so at the end of the term you owe the entire original amount (the “balloon payment”). You need a separate repayment vehicle — savings, investments, or sale of the property — to cover this.

Arrangement fees

Lenders charge an arrangement fee (also called a product fee) to set up the mortgage, typically £999–£1,999. You can either:

1. Pay upfront — the fee does not affect your loan or monthly payment
2. Add to the loan — the fee is rolled into the principal, so you pay interest on it for the full term (increasing total cost but reducing upfront outlay)

공식

For interest-only mortgages, the formula simplifies to:

M = P × r

where r is the monthly interest rate.

Accounting identities

These relationships always hold and are useful for cross-checking:

• Repayment: totalRepayable = M × n and totalInterest = totalRepayable − P
• Interest-only: totalInterest = M × n and totalCost = totalInterest + P (the balloon payment)

계산 예시

입력값 설명

• Property price — the agreed purchase price of the property
• Deposit — the amount you pay upfront, subtracted from the property price to give the loan amount
• Annual interest rate — the rate your lender charges, expressed as a percentage (e.g. 4.5%). Typical UK rates in 2025–2026 range from about 4% to 5.5% for fixed-rate deals.
• Term — the number of years over which you repay the mortgage. The UK standard is 25 years, though 15–40 year terms are available.
• Payment type — repayment (capital + interest) or interest-only
• Arrangement fee — lender’s product fee, with the option to add it to the loan or pay upfront

출력값 설명

• Monthly payment — the fixed amount due each month
• Total repayable — the sum of all monthly payments over the full term (plus balloon payment for interest-only)
• Total interest — how much you pay in interest over the life of the mortgage
• Loan amount — the actual amount borrowed (property price minus deposit, plus arrangement fee if added)
• Total cost — total repayable plus any upfront fees

가정 및 제한사항

• The calculator assumes a fixed interest rate for the entire term. In practice, most UK mortgages are fixed for 2 or 5 years and then revert to the lender’s Standard Variable Rate (SVR).
• It uses monthly compounding with equal monthly payments. Some UK lenders calculate interest daily, which produces very slightly different results.
• The calculator does not account for stamp duty, solicitor fees, or other purchase costs — these are covered by the stamp duty and total cost calculators.
• Overpayments are not modelled here — see the overpayment calculator for that.

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