Mortgage Calculator

What the payment is made of

A repayment mortgage payment covers the interest accrued that month on the outstanding balance, and whatever remains reduces the principal. Because interest is charged on the balance, early payments are overwhelmingly interest and barely dent what you owe. On a 25-year mortgage at typical rates, the crossover where principal exceeds interest in a single payment arrives years in, which is why the balance falls so slowly at first.

Principal and interest is not the full cost

The quoted monthly figure is typically 60 to 75 percent of what owning actually costs. Add property tax or council tax, buildings insurance, and service charges or ground rent on a leasehold. Then maintenance, which averages 1 to 2 percent of property value a year over the long run and arrives in lumps rather than monthly: nothing for three years, then a roof. Budgeting only the mortgage payment is the most common first-time-buyer error.

Term changes total cost enormously

Extending from 25 to 35 years lowers the monthly payment noticeably and increases total interest substantially, because you are borrowing the same money for a decade longer. Compare offers on total cost across the full term, not on the monthly figure, which can be made to look attractive simply by stretching the term.

Loan-to-value drives the rate

Lenders price in bands, typically at 90, 85, 80 and 75 percent LTV. A slightly larger deposit that crosses a boundary moves the entire loan into a better rate band, which is worth far more than the same money reducing the balance within a band. Work out where the nearest threshold sits before deciding on a deposit.

Overpay early if you can

Because interest accrues on the outstanding balance, an overpayment early removes far more future interest than the same sum later. Check the annual overpayment allowance first, commonly 10 percent of the balance on a fixed product, since exceeding it triggers an early repayment charge that can outweigh the saving.

Stress-test the rate

Run the numbers two or three points above today's rate. Fixed periods end, and if the payment at a higher rate would be unmanageable then the loan is too large regardless of what is affordable now.