How to Calculate Mortgage Repayment?

Taking out a mortgage to purchase a home is an exciting yet daunting process. One of the most important things to understand is how your mortgage repayment will be calculated. This determines your budget and affordability.

This comprehensive guide will explain everything you need to know about calculating mortgage repayments in the UK.

Key Terms and Concepts

To understand mortgage repayments, you first need to get familiar with some key terminology:

  • Mortgage: A loan taken out to purchase a property, which is used as collateral on the loan.
  • Principal: The amount borrowed – so if you take out a £200,000 mortgage, this is the principal amount.
  • Interest rate: The percentage charged on the principal by the lender. This can be fixed or variable.
  • APRC: The Annual Percentage Rate of Charge, which includes the interest rate plus any fees or extra costs.

Read more to learn about What Is a Mortgage Deed?

Capital Repayment vs Interest-Only Mortgages

There are two main types of mortgage to understand:

  • Capital repayment: You pay back the principal amount borrowed as well as interest each month. By the end of the term, the entire principal is repaid.
  • Interest-only: You only pay the interest each month and the principal amount remains unchanged. This needs to be paid back at the end of the term via another method.

Over 75% of UK mortgages are now capital repayment. This guide focuses on calculating repayments for this type.

Are you wondering to know how many boxes you will need to move house? Then read this article.

Step-by-Step Repayment Calculation

The formula to calculate monthly mortgage repayments is:

mortgage repayment formula

M = Monthly repayment
P = Principal (amount borrowed)
i = Monthly interest rate (APRC/12)
n = Number of monthly payments (term in months)

Let’s break this formula down into a step-by-step guide:

  1. Gather details – amount borrowed, interest rate %, mortgage term
  2. Convert rates – Divide APRC by 12 to get monthly interest rate
  3. Calculate term – Multiply number of years by 12 to get total months
  4. Plug figures into formula
  5. Calculate and get monthly repayment value

Here’s an example table showing the figures:

Loan DetailsValues
Interest Rate (APRC)3%
Term25 years
Monthly Interest Rate3%/12 = 0.25%
Number of Months25 x 12 = 300
M£250,000 x [0.25% x (1 + 0.25%)^300] / [(1 + 0.25%)^300 – 1]
Monthly Repayment£1,077.14

Using this mortgage repayment formula and following the steps will allow you to calculate your monthly costs.

Read this article if you wondering What Does “Let Agreed” Mean In Property?

Additional Costs

When budgeting, remember that the repayment calculated is not your total monthly mortgage cost. You also need to factor in:

  • Arrangement fees
  • Valuation fees
  • Legal fees
  • Buildings insurance
  • Life insurance
  • Early repayment charges

Getting estimates for these before applying for deals will give you the full picture.

Tools To Use

To make life easier, you can use mortgage calculators to estimate your payments instead of doing complex manual calculations. There are also mortgage repayment calculators built into Excel and other spreadsheet tools.


I hope this guide has helped explain the key steps in calculating your potential mortgage repayments. Understanding how the monthly costs are worked out for capital repayment mortgages allows you to accurately compare deals and assess affordability. Don’t hesitate to seek professional advice if you have any questions.

Leave a Comment