Mortgage Calculator

How Mortgage Amortisation Works

A mortgage is an amortising loan — meaning each payment covers both interest and principal, with the ratio shifting over time.

In the early years, most of your payment goes to interest. By the final years, most goes to principal. This is why overpaying early has such a dramatic effect.

Monthly Payment Formula: M = P × [r(1+r)^n] / [(1+r)^n − 1]

Where P = loan amount, r = monthly interest rate (annual rate ÷ 12), n = total months.

📊 Impact of Interest Rate on a £300,000 Mortgage (25 years)

A 3% rate increase costs you £153,000 extra in interest over the life of the loan.

The Power of Overpayment

Overpaying by just £200/month on a £300,000 mortgage at 4.5% (25 years):

• Saves approximately £28,000 in interest
• Pays off the mortgage 4.5 years early

Most UK lenders allow 10% overpayment per year without penalty during a fixed-rate period.

Repayment vs Interest-Only

Interest-only mortgages require a separate investment vehicle (ISA, pension, endowment) to repay the capital. If that vehicle underperforms, you face a shortfall.

Stamp Duty & Transaction Costs (UK)

Remember to factor in buying costs:

• Stamp Duty Land Tax (SDLT): 0% up to £250,000; 5% on £250,001–£925,000 (for primary residence, as of 2024)
• Legal fees: ~£1,000–£2,000
• Survey: £300–£700
• Broker fee: £0–£500

Frequently Asked Questions

Q: Fixed vs variable rate — which is better? A: Fixed rates provide certainty — ideal when rates are low or rising. Variable (tracker) rates can save money when rates fall but add budgeting uncertainty. Most financial advisers recommend fixing for 2–5 years and reviewing at each term end.

Q: LTV and how it affects your rate? A: Loan-to-Value (LTV) = Mortgage ÷ Property Value. Lower LTV = lower risk = better rates. An 85% LTV typically gets 0.3–0.7% higher rate than a 60% LTV on the same product.