How a repayment mortgage works
A repayment mortgage is a loan secured against a property where every monthly payment covers two things at once: the interest charged on whatever you still owe, and a slice of the amount borrowed itself. Keep paying on schedule and the balance reaches exactly zero on the date agreed at the start, known as the term.
The amount you borrow is the price of the home minus your deposit, called a down payment in the US: the money you put in yourself before the loan covers the rest. Put down 20% on a $350,000 home and you borrow $280,000. Every figure below runs from that borrowed amount, the loan, not the sticker price of the house.
The monthly payment stays fixed for the whole term, assuming the rate does not change, and it comes from one formula:
P is the loan, not the house price. r is the monthly interest rate, the annual rate divided by 12 because payments fall monthly. n is the total number of monthly payments across the term. Feed 30 years at 5.50% on a $280,000 loan into that formula and it returns $1,589.81 a month, the same figure the calculator above lands on by default. When the rate is zero, the formula collapses to a plain P ÷ n, which the calculator also handles.
Why the early years are mostly interest
Every payment on a repayment mortgage is the same size for the whole term, but the mix inside it keeps changing, and that catches most first-time buyers by surprise. Interest is charged only on the balance still outstanding, so it is largest at the very start, when the balance is largest, and it shrinks a little every month as the balance falls. Whatever is left after interest is deducted becomes principal, the part that actually reduces what you owe. This slow flip from mostly-interest to mostly-principal is called amortisation.
Take the calculator's own defaults: a $280,000 loan at 5.50% over 30 years. The very first payment splits into $1,283.33 of interest and just $306.48 of principal, under a fifth of the $1,589.81 handed over. Run the same loan to the start of year 16, roughly halfway through the term, and the split has flipped to about $895 interest and $695 principal, close to even. By the final year, almost the whole payment is principal, because so little balance is left to charge interest on.
This is why paying off a mortgage feels slow at first and fast at the end, and why moving house or remortgaging a few years into a new loan resets the clock back to the expensive part of the curve. It also means an overpayment made early in the term saves more interest than the same overpayment made late, because it removes balance while the interest charge on it is at its highest.
What changing the term actually does
A shorter term raises the required monthly payment, because n gets smaller and each of the fewer remaining payments has to cover more, and it lowers the total interest, because there are fewer months left for interest to be charged on a balance that is falling faster anyway. A longer term does the reverse: a smaller monthly payment, spread across more months of interest.
Overpaying most or all of what a shorter term would have demanded gets you to a very similar place, a smaller balance sooner, without signing up to a higher required payment. The difference is commitment rather than arithmetic: a shorter official term is written into the mortgage offer and cannot be undone without a new agreement, while a voluntary overpayment can simply stop the month money is tight, with no missed-payment mark against you, because the required minimum payment never changed.
Overpaying without it going wrong
Most lenders let borrowers overpay a portion of the outstanding balance each year, commonly around 10%, without triggering an early repayment charge, particularly during a fixed-rate deal. Go past that allowance and the charge can claw back a meaningful part of what the overpayment just saved, so it is worth reading the mortgage offer, or asking the lender directly, before setting up a regular extra payment.
An extra $200 a month against the calculator's default loan clears it 6 years 11 months early and saves about $78,235 in interest, comfortably inside a typical 10% allowance on a loan this size. The "Extras" section of the calculator above runs the same maths against your own numbers, with a note showing exactly what your figure saves.
Overpaying only makes sense once cheaper debt is out of the way first. Credit cards and most personal loans charge a good deal more than a typical mortgage rate, so clearing those first saves more than an equivalent mortgage overpayment ever could. A cash buffer covering three to six months of essential spending matters too, because money paid into a mortgage is awkward to get back out in a hurry, unlike a savings account, if a boiler fails or a job disappears.
Why rate sensitivity matters
A rate is never guaranteed for the life of a mortgage. Fixed deals end, trackers and standard variable rates move with the market, and remortgaging onto a worse rate than expected is a real possibility over a 25 or 30-year term. Add a single percentage point to the calculator's default case, taking the rate from 5.50% to 6.50%, and the monthly payment climbs from $1,589.81 to $1,769.79, about $180 more a month, an 11% jump, with the loan amount and term unchanged.
This is exactly why many lenders stress-test affordability against a higher rate before agreeing a mortgage, and it is worth running the same sum yourself. The "Rate sensitivity" table in the results above repeats this automatically, from a full point below your chosen rate to two points above it, so you can see in advance whether the budget still holds if the number on the offer changes before completion, or when a fixed deal comes to an end and reverts to a variable rate.
Questions people ask
What is the difference between a repayment and an interest-only mortgage?
A repayment mortgage, the kind this calculator works out, reduces the balance a little every month until it reaches zero at the end of the term. An interest-only mortgage covers only the interest each month, so the amount borrowed stays exactly the same until it is repaid in one lump sum, usually from a separate savings or investment plan, or by selling the property. Interest-only payments look smaller month to month, but the loan itself never shrinks on its own.
Is APR the same as the interest rate I enter here?
No. The rate in this calculator is the note rate, the figure the monthly payment formula actually uses. APR, or APRC in the UK, folds in most of the fees attached to the deal and spreads them across the term to give a single yearly cost for comparing offers. Two mortgages with the same note rate can carry different APRs once arrangement fees are added, so use the note rate here for the payment amount and the APR for shopping between lenders.
How much can I actually borrow?
Lenders run a full affordability assessment, but rough rules of thumb still help as a first estimate. One common rule multiplies household income by around four to four and a half times; another checks that housing costs stay under roughly 28 to 36% of gross income alongside any other debts. Both are starting points, not promises, since credit history, existing debt and each lender's own criteria move the real figure up or down. A dedicated affordability calculator, working from income and outgoings rather than a fixed multiple, is next on our build list; the House Affordability Calculator holds that spot.
Do mortgage overpayments come with a penalty?
Sometimes, and it depends entirely on the deal. Most lenders allow overpayments up to an annual allowance without a penalty, often around 10% of the balance, especially on fixed-rate products; anything beyond that can trigger an early repayment charge, typically a percentage of the amount overpaid. Some mortgages, mainly variable-rate ones, allow unlimited overpayments with no charge at all. The figure is always in the mortgage offer document, and it is worth checking before committing to a regular extra payment.
What is the difference between a fixed and a variable rate, in short?
A fixed rate locks the interest rate, and therefore the payment, for an agreed period, commonly two to five years, so budgeting is predictable but you do not benefit if rates fall. A variable rate, including trackers and standard variable rates, moves with the lender's own pricing or a reference rate such as the base rate, so payments can rise or fall during the deal; it tends to cost less when rates are falling and more when they are rising.
This calculator gives an estimate for a standard repayment mortgage and is not financial, legal or lending advice. Real quotes depend on fees, insurance, credit history and a lender's own criteria, and rates change daily. Speak to a mortgage adviser or your lender before making a decision.