A mortgage is likely the largest financial commitment of your life, yet most people sign up without fully understanding how the monthly repayment is calculated. This guide breaks down the maths, explains affordability benchmarks, and shows you exactly how making overpayments can save tens of thousands of pounds.
For a standard repayment mortgage (capital and interest), the monthly payment M is calculated as:
Lenders use two main checks to assess affordability:
Most UK lenders offer 4–4.5× your annual income. Some will stretch to 5× or even 5.5× for high earners. On a joint income of £80,000, you might borrow £320,000–£360,000.
Lenders check that you could still afford repayments if rates rose by 3% above the current standard variable rate. This is why some buyers get offered less than they expected, even with a healthy income.
Your total monthly debt payments (mortgage + loans + car finance + credit cards) should ideally be below 43% of your gross monthly income. Most lenders become cautious above 36%.
| Feature | Repayment | Interest-Only |
|---|---|---|
| Monthly cost | Higher | Lower |
| Equity built | Yes — steadily | No |
| End of term | Fully owned | Full balance still owed |
| Risk | Low | High (needs repayment plan) |
| Best for | Most homeowners | Investors / specialist cases |
Most lenders allow overpayments of up to 10% of the outstanding balance per year without penalty. The savings are striking:
| Monthly overpayment | Years saved | Interest saved |
|---|---|---|
| £0 | 0 | £0 |
| £100 | ~3 years | ~£18,000 |
| £250 | ~6 years | ~£36,000 |
| £500 | ~9 years | ~£52,000 |
Based on £250,000 at 4.5% over 25 years.
On a £250,000 mortgage over 25 years:
| Rate | Monthly Payment | Total Interest |
|---|---|---|
| 3.5% | £1,252 | £125,600 |
| 4.5% | £1,389 | £166,700 |
| 5.5% | £1,534 | £210,200 |
| 6.5% | £1,688 | £256,400 |
A 2% difference in rate costs over £130,000 extra in interest. This is why comparing deals and remortgaging at the right time matters enormously.
See exactly how much house you can afford, compare repayment scenarios, and model the impact of overpayments — all in one free tool.
Open Mortgage Calculator →Early in your mortgage, the majority of each payment goes to interest. As the balance reduces, more goes toward capital. This is called amortisation. In year 1 on a 25-year mortgage, roughly 70% of your payment may be interest; by year 20 it could be less than 30%.
LTV is your mortgage as a percentage of the property value. A £180,000 mortgage on a £200,000 property is 90% LTV. Lower LTV = better rates — lenders see less risk. The best rates typically kick in below 60% LTV.
Yes, but expect a smaller loan and a higher interest rate. Specialist lenders cater to this market. Improving your credit score before applying (reducing debt, registering on the electoral roll, avoiding new credit applications) can make a significant difference.
You move to your lender's SVR, which is usually much higher. Start comparing remortgage deals 3–6 months before your fixed period ends to lock in a new rate without any penalty.