Mortgage Repayments: How are They Calculated?
The mortgage process follows a relatively simple principle: acquiring a loan and making regular payments over a specified term until the loan is fully repaid, granting complete homeownership. However, a multitude of factors influence the calculation of mortgage repayments, often complicating their accurate estimation.
In this guide, we’ll explore the variables that impact mortgage repayments, along with tools to assist you in calculating these figures independently. We will go over:
What factors determine mortgage repayments?
The monthly repayments on your mortgage are determined by several key factors: the loan amount, the agreed-upon term, the interest rate, and the type of mortgage product.
Loan amount
Typically, lenders base the amount you can borrow on a multiple of your annual income, often around 4.5 times, though this can vary by lender. This borrowed amount is then repaid over the agreed-upon term, with monthly interest added.
Term length
Opting for a longer repayment term with a conventional repayment mortgage results in lower monthly payments since the debt is spread over a longer period. However, this also means paying more interest overall due to the extended repayment period.
Interest rate
The interest rate you secure greatly influences your repayment amounts. Lenders determine this rate based on individual aspects such as your deposit amount, credit history, and current market conditions.
Mortgage type
Fixed-rate: Fixed-rate mortgages lock in a consistent interest rate for a set period, commonly ranging from one to 25 years. While they provide payment stability, fixed rates often come at a slightly higher cost.
Variable rate: Variable-rate mortgages, like tracker rate mortgages, have interest rates that can fluctuate during the term. These rates are usually tied to external indices, such as the Bank of England's base rate.
Interest-only mortgages: Interest-only mortgages offer the lowest monthly payments since only the interest is due each month. However, the full mortgage amount must be repaid at the term's end, typically through a pre-arranged repayment vehicle.
Example mortgage repayment calculations
Mortgage repayments based on term length
The data below assumes a mortgage loan amount of £200,000 with an interest rate of 5.25%.
Loan Amount | Term Length | Monthly Repayment | Overall Repayment |
£200,000 | 10 years | £2,170 | £260,431 |
£200,000 | 15 years | £1,634 | £294,169 |
£200,000 | 20 years | £1,362 | £326,914 |
£200,000 | 25 years | £1,211 | £363,288 |
£200,000 | 30 years | £1,113 | £400,283 |
£200,000 | 35 years | £1,046 | £437,687 |
£200,000 | 40 years | £998 | £477,037 |
Mortgage repayments based on interest rates
Using the same mortgage amount of £200,000 and a term length of 25 years, this table demonstrates how repayments vary with different interest rates.
Loan Amount | Interest Rate | Monthly Repayment | Overall Repayment |
£200,000 | 3% | £948 | £284,294 |
£200,000 | 3.5% | £1,002 | £300,479 |
£200,000 | 4% | £1,056 | £316,885 |
£200,000 | 4.5% | £1,111 | £333,512 |
£200,000 | 5% | £1,167 | £350,360 |
£200,000 | 5.5% | £1,224 | £367,429 |
£200,000 | 6% | £1,282 | £384,718 |
Mortgage repayments based on mortgage amount
The following table compares repayments across various loan amounts, assuming a standard 25-year term length and an interest rate of 5.25%.
Loan Amount | Monthly Repayment | Overall Repayment |
£100,000 | £599 | £179,618 |
£200,000 | £1,198 | £359,236 |
£250,000 | £1,498 | £449,045 |
£300,000 | £1,797 | £538,854 |
£350,000 | £2,097 | £628,663 |
£400,000 | £2,397 | £718,472 |
£450,000 | £2,696 | £808,281 |
£500,000 | £2,996 | £898,090 |
Interest-only mortgage repayments
This table presents examples of interest-only mortgage repayments based on a loan amount of £200,000 and a 25-year term length, with varying interest rates. Note that the overall repayment remains the same as the original loan amount since the borrower only pays the interest and does not reduce the principal balance.
Loan Amount | Interest Rate | Monthly Repayment | Overall Repayment |
£200,000 | 3% | £500 | £200,000 |
£200,000 | 3.5% | £583 | £200,000 |
£200,000 | 4% | £667 | £200,000 |
£200,000 | 4.5% | £750 | £200,000 |
£200,000 | 5% | £833 | £200,000 |
£200,000 | 5.5% | £917 | £200,000 |
£200,000 | 6% | £1,000 | £200,000 |
How to calculate mortgage repayments
You can use our mortgage repayment calculator to estimate your potential mortgage repayments based on all the factors we’ve spoken about so far. Simply input the corresponding details to receive fast and accurate results.
Additional considerations
It's important to bear in mind that your mortgage repayments don't encompass all the expenses associated with purchasing a property. Alongside repayments, you'll need to account for various fees and charges. For instance, there are product fees, covering administrative costs, which can range from £0 to £2,000.
Additionally, there's a booking fee, an administrative charge incurred during the formal application process, typically ranging from £99 to £250. And on top of this, there's the valuation fee, which may be required by some lenders to assess the property's value, costing between £250 and £1,500.
How to reduce your mortgage repayments
If you're looking to reduce your mortgage repayments then feel free read our article on how to cut your mortgage payments, or you can instead consider the following strategies for a condensed overview:
1. Increasing your deposit size
By putting down a larger deposit, you'll need to borrow less, potentially reducing your loan-to-value (LTV) ratio and making you eligible for a lower interest rate.
2. Extending your mortgage term
Opting for a longer mortgage term can decrease your monthly payments in the short term, but it's significant to note that this may result in paying more interest over the life of the loan.
3. Improving your credit score
A better credit score can lead to lower interest rates. Take steps to improve your credit score by allowing any negative marks to fade from your credit files, paying off debts where possible, and ensuring timely payment of bills and credit agreements.
If you want to get an idea of your financial health before you apply, you can use our free credit check tool (£14.99 per month after the free 30-day trial). Using it will help you to highlight any possible mistakes or fraudulent activity on your profile, so that you can quickly deal with such problems. The trial and subscription can be cancelled at any time.
4. Consulting an expert mortgage broker
Consult with a knowledgeable mortgage broker to discover lenders offering the most favourable deals tailored to your situation. A skilled broker can assist in ensuring your mortgage repayments remain affordable by securing a competitive interest rate, selecting the appropriate product type, and agreeing upon a suitable term length.
At The Mortgage Genie, our team of experienced mortgage advisors have access to the entire market, enabling us to pinpoint the most suitable mortgage product for your unique circumstances. Contact us at 01915809890 and we'll connect you with a professional who specialises in addressing your specific needs.
This information is a guide only and should not be relied on as a recommendation or advice that any particular mortgage is suitable for you. All mortgages are subject to the applicant(s) meeting the eligibility criteria of the specific lender. You should make an appointment to receive mortgage advice which will based on your needs and circumstances.