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How the monthly payment is calculated

For a repayment mortgage, each monthly payment covers the interest charged on the current balance plus a portion of the capital. Early in the term, most of the payment is interest and very little reduces the balance. Over time, as the balance falls, the interest portion shrinks and the capital portion grows. This is called amortisation, and the year-by-year table above shows exactly how it plays out.

Loan-to-value and interest rates

LTV is the size of your mortgage as a percentage of the property value. The lower your LTV, the less risk the lender takes on, and the lower the interest rate they will typically offer. Most lenders reserve their best rates for borrowers at 60% LTV or below, with incremental pricing tiers at 75%, 80%, 85%, and 90%. Borrowing above 90% LTV usually comes with a significant rate premium and may require additional protection.

Repayment vs interest-only

With a repayment mortgage, your monthly payment covers both interest and capital. The balance reaches zero at the end of the term and you own the property outright. With an interest-only mortgage, your monthly payment covers only the interest; the full capital balance remains at the end and must be repaid separately. Interest-only has lower monthly outgoings but costs far more overall and requires a credible repayment plan. Most UK residential lenders now require evidence of a repayment vehicle before offering interest-only products.

Choosing your mortgage term

The mortgage term directly controls your monthly payment. A longer term means lower monthly payments but far higher total interest. Extending from 25 to 35 years on a £240,000 mortgage at 4.5% saves around £220 per month but costs roughly £75,000 more in interest. Many borrowers choose a longer term for initial affordability, then overpay or remortgage to a shorter term as circumstances allow.

How to pay less interest

Regular overpayments are one of the most powerful ways to reduce both the term and the total interest paid. Because mortgage interest compounds daily or monthly on the outstanding balance, anything that reduces the balance sooner saves a disproportionate amount of future interest. Even £100 per month extra on a £200,000 mortgage can save several years and tens of thousands in interest. Use the Mortgage Overpayment Calculator to model your specific scenario.

Fixed rate vs tracker vs variable

A fixed-rate mortgage locks your interest rate for a set period, typically 2, 3 or 5 years, regardless of what happens to the Bank of England base rate. This gives payment certainty and protects against rate rises, but you will not benefit if rates fall. At the end of the fixed period your lender moves you onto their standard variable rate (SVR), which is almost always higher; most borrowers remortgage before this happens.

A tracker mortgage follows the Bank of England base rate plus a set margin (e.g. base rate + 1%). Your monthly payment moves up or down with the base rate. Trackers are suitable if you expect rates to fall or want the flexibility to overpay or exit without large early repayment charges.

In 2026, with base rate expected to decline from its recent peak, some borrowers are choosing shorter fixes or trackers rather than locking in for five years. The right choice depends on your view of rates and how long you plan to stay in the property.

The true cost of a mortgage beyond the rate

The interest rate is only one part of the cost. Lenders charge several fees that can add thousands to the upfront or overall cost:

• Arrangement / product fee, Typically £500–£1,500, sometimes higher on lower-rate products. Can be added to the loan, but then accrues interest over the term.
• Valuation fee, The lender's survey of the property, £150–£400 depending on property value. Separate from the buyer's own survey.
• Early repayment charge (ERC), Usually 1–5% of the outstanding balance during the fixed period. Makes switching or fully repaying expensive before the deal ends.
• Higher lending charge, Some lenders charge this on high-LTV borrowing (above 90%), effectively insuring themselves against default at your expense.

Always compare mortgages on their APRC (Annual Percentage Rate of Charge), which includes all fees over the full term, not just the headline rate.

What happens when your fixed rate ends

When your fixed or tracker deal expires, your lender automatically moves you onto their standard variable rate (SVR), typically 2–4% above the current best available rates. Sitting on an SVR is almost always the most expensive option.

You can start shopping for a remortgage deal up to 6 months before your current deal ends. Many lenders allow you to lock in a rate now for completion later, protecting against any rate rises in the meantime. Use the Remortgaging Guide to understand when and how to switch, and the Overpayment Calculator to see whether using savings to reduce your balance before remortgaging could unlock a lower LTV tier.