UK Mortgage Calculator 2025

How Mortgage Repayments Are Calculated

Mortgage repayments are calculated using a standard amortisation formula that takes into account the loan amount, interest rate, and term length. For a repayment mortgage, each monthly payment covers both the interest accrued that month and a portion of the original loan amount (principal). In the early years, a larger proportion of each payment goes towards interest, with the balance gradually shifting towards principal repayment as the loan decreases.

The standard formula for calculating monthly repayment mortgage payments is: M = P x [r(1+r)^n] / [(1+r)^n - 1], where M is the monthly payment, P is the loan principal, r is the monthly interest rate (annual rate divided by 12), and n is the total number of monthly payments (term in years multiplied by 12).

For interest-only mortgages, the calculation is simpler. The monthly payment is the loan amount multiplied by the monthly interest rate. The principal is not repaid during the term, so the loan balance remains constant throughout. At the end of the term, you must repay the full original loan amount in a lump sum.

Understanding Loan to Value (LTV)

Loan to Value (LTV) is one of the most important factors in determining your mortgage rate. It represents the proportion of the property's value that you are borrowing. A lower LTV means you have more equity in the property, which reduces the lender's risk and typically results in a lower interest rate.

LTV is calculated as: (Mortgage Amount / Property Value) x 100. For example, if you are buying a property for £300,000 with a £60,000 deposit, your loan amount is £240,000 and your LTV is 80%.

UK mortgage lenders typically offer rates in LTV bands. The most common bands and their general characteristics are:

The difference in interest rates between LTV bands can be significant. Even a 0.5% difference in rate on a £200,000 mortgage over 25 years amounts to over £15,000 in additional interest. This is why saving for a larger deposit can be one of the most effective ways to reduce your total mortgage costs.

Repayment vs Interest-Only Mortgages

The choice between repayment and interest-only has a significant impact on both your monthly payments and total cost of borrowing. Here is a comparison for a £225,000 mortgage at 4.5% over 25 years:

While interest-only payments are lower each month, the total cost is significantly higher because you are paying interest on the full loan amount for the entire term, and you still need to repay the £225,000 capital at the end. Interest-only mortgages are now primarily used by buy-to-let investors, who plan to sell the property to repay the loan, or by borrowers with a credible repayment strategy.

How Interest Rates Affect Your Payments

Even small changes in interest rates can have a substantial impact on your monthly payments and total costs. The following table shows the monthly payment on a £200,000 repayment mortgage over 25 years at different interest rates:

A 1% increase in rate on a £200,000 mortgage adds approximately £100 to £130 to the monthly payment. Over 25 years, this means an additional £30,000 to £40,000 in total interest. This is why securing the best possible rate is so important, and why many borrowers choose fixed rate deals for the certainty they provide.

Affordability and Stress Testing

Since the introduction of the Mortgage Market Review (MMR) in 2014, UK lenders are required to assess whether borrowers can afford their mortgage not just at the current rate, but also if rates were to increase. This is known as stress testing. Lenders typically stress test at a rate 3% above the current revert rate (the rate you would pay after your fixed period ends).

Affordability assessments consider your income, existing financial commitments (credit cards, loans, car finance), essential living costs, and dependants. Lenders use their own models, so it is possible to be accepted by one lender and rejected by another. A mortgage broker can help identify lenders most likely to approve your application based on your circumstances.

As a general rule of thumb, your mortgage payment should not exceed 28% to 35% of your gross monthly income. This gives you a buffer for other expenses and potential rate increases. Use our salary calculator to check your take home pay alongside this mortgage calculator to ensure the payments are comfortable within your budget.

Worked Examples

Example 1: First-Time Buyer

A first-time buyer purchasing a £250,000 property with a £25,000 deposit (10% LTV of 90%), on a 25-year repayment mortgage at 5.0%:

• Loan amount: £225,000
• Monthly payment: ~£1,316
• Total repaid over 25 years: ~£394,900
• Total interest paid: ~£169,900

If they could save an additional £25,000 for a £50,000 deposit (80% LTV), they might access a lower rate of around 4.0%, giving a monthly payment of ~£1,056 — a saving of £260 per month and over £50,000 in total interest.

Example 2: Moving Up the Property Ladder

A couple selling their £200,000 flat (with £120,000 equity after repaying their mortgage) and buying a £400,000 house:

• Property value: £400,000
• Deposit (equity from sale): £120,000
• Loan amount: £280,000
• LTV: 70%
• Rate: 4.2% (competitive rate at 70% LTV)
• Term: 30 years
• Monthly payment: ~£1,370
• Total interest: ~£213,200

Common Mistakes When Getting a Mortgage

1. Only Looking at the Monthly Payment

It is tempting to focus only on the monthly payment amount, but the total cost of borrowing is equally important. A longer mortgage term reduces monthly payments but significantly increases total interest. For example, extending a £200,000 mortgage from 25 to 35 years at 4.5% reduces the monthly payment from £1,112 to £921, but increases total interest from £133,560 to £186,820 — an extra £53,260.

2. Forgetting About Arrangement Fees

Many competitive mortgage rates come with substantial arrangement fees, sometimes over £1,000. A mortgage with a slightly higher rate but no fee may work out cheaper overall, especially for smaller loan amounts or shorter fixed terms. Always compare the total cost including fees, not just the headline rate.

3. Not Remortgaging When Your Fixed Rate Ends

When your fixed rate expires, your mortgage reverts to the lender's Standard Variable Rate (SVR), which is typically 2% to 4% higher. Staying on the SVR even for a few months can cost hundreds of pounds in unnecessary interest. Set a reminder to start looking for new deals 3 to 6 months before your current rate expires.

4. Ignoring the Impact of Overpayments

Regular overpayments, even small ones, can dramatically reduce your total interest and mortgage term. Most lenders allow you to overpay up to 10% of the outstanding balance per year without early repayment charges. Even £50 per month extra on a £200,000 mortgage can save over £8,000 in interest and reduce the term by 2 years.