Quick answer
UK repayment mortgages use the annuity formula: each month you pay the same fixed amount, which covers that month's interest on your outstanding balance plus a slice of capital. Early in the term, most of the payment is interest because the balance is still large; by the end, almost all of it is capital because the balance has shrunk.
For example, a £150,000 mortgage at 5% over 25 years costs £877 a month — the same figure every month for the full term.
In this guide
The mortgage repayment formula
Every UK repayment mortgage — whatever the lender, rate or term — uses the same annuity formula to work out the fixed monthly payment:
M = P × r(1+r)n ÷ ((1+r)n − 1)
- M— the monthly payment (the figure you're solving for)
- P — the loan amount (principal)
- r — the monthly interest rate, i.e. the annual rate ÷ 12
- n — the total number of monthly payments, i.e. the term in years × 12
The formula guarantees that if you pay exactly M every month for n months, the loan is paid off to zero — no more, no less. That is what makes it a repayment mortgage: unlike interest-only (covered below), the balance is guaranteed to reach £0 by the end of the term as long as you keep paying M.
Worked example: £150,000 at 5% over 25 years
Plugging real numbers into the formula, step by step:
| Step 1 — the loan | P = £150,000 |
| Step 2 — monthly rate | r = 5% ÷ 12 = 0.4167% per month (0.0041667) |
| Step 3 — number of payments | n = 25 years × 12 = 300 months |
| Step 4 — growth factor | (1+r)n = 1.0041667300 ≈ 3.4813 |
| Step 5 — solve for M | M = £150,000 × (0.0041667 × 3.4813) ÷ (3.4813 − 1) ≈ £877 |
So a £150,000 mortgage at 5% over 25 years costs £877 a month, every month, for the full 300 payments. See this same figure and the wider matrix by rate and term on our £150,000 mortgage repayments page.
How the interest/capital split shifts over the term
The monthly payment stays fixed at £877, but what it's made up of changes completely over 25 years. Interest is charged on whatever you currently owe, so as the balance falls, less of each payment is interest and more goes towards clearing the capital:
| Year of term | Interest (avg/month) | Capital (avg/month) | % of payment that's interest |
|---|---|---|---|
| Year 1 | £619 | £258 | 71% |
| Year 12 | £431 | £446 | 49% |
| Year 25 | £23 | £854 | 3% |
In year 1, around 71% of the payment is interest. By year 12 — roughly the midpoint — it's closer to a 50/50 split. By year 25, only about 3% is interest and almost the entire payment is clearing the last of the capital. This is exactly why overpaying early saves so much more interest than overpaying the same amount near the end of the term — early overpayments strip capital out of the balance while it's still attracting the most interest.
What changes the payment: rate, term and amount
Only three things feed into the formula, so only three things can change your payment: how much you borrow, the interest rate, and the term. Here's £150,000 across the three rates and terms most commonly quoted:
| Rate | 20 years | 25 years | 30 years |
|---|---|---|---|
| 4% | £909 | £792 | £716 |
| 5% | £990 | £877 | £805 |
| 6% | £1,075 | £966 | £899 |
A higher rate always pushes the payment up, and a longer term always pulls it down — because the same capital is spread over more monthly payments. But a longer term also means more total interest paid over the life of the loan, since you're carrying the balance for longer. See the full matrix across every loan amount, rate and term on the repayment calculator, or try £100,000 and £200,000 for other loan sizes.
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Start My Free CheckRepayment vs interest-only
The formula above is for a repayment mortgage — the mainstream choice for owner-occupiers, where the balance reaches zero by the end of the term. An interest-onlymortgage uses a much simpler sum: you pay only that month's interest, and the capital never falls.
£150,000 at 5% — repayment vs interest-only
Interest-only: P × r ÷ 12
£150,000 × 5% ÷ 12 = £625 per month. After 25 years you still owe the full £150,000.
Repayment over 25 years
£877 per month. After 25 years you owe nothing.
Interest-only frees up £252 a month of cashflow, but the full £150,000 is still due at the end — see our interest-only affordability guide and the repayment vs interest-only glossary entry for the full trade-off.
Why lenders stress-test above your actual rate
The formula above tells you what you'd pay at your actual product rate. But when a lender decides how much to offer you, they don't just run this formula at your rate — they also run it at a higher, hypothetical stress rate (commonly 6-8.5%) to check you could still afford the payment if rates rose after any fixed period ends. That stress-tested figure, not your actual quoted payment, is usually what caps how much you're allowed to borrow.
Frequently asked questions
How do you calculate a monthly mortgage payment?
Repayment mortgages use the annuity formula M = P × r(1+r)^n / ((1+r)^n − 1), where P is the loan amount, r is the annual interest rate divided by 12 (the monthly rate), and n is the number of monthly payments (years × 12). For a £150,000 loan at 5% over 25 years, r = 0.05 ÷ 12 and n = 300, which gives a monthly payment of £877. Every fixed-rate repayment mortgage in the UK is calculated this way — only P, r and n change.
How much of my mortgage payment is interest?
It depends how far through the term you are. On a £150,000 mortgage at 5% over 25 years, around 71% of your payment is interest in year 1 (about £619 of the £877 monthly payment), falling to roughly 49% by year 12, and down to about 3% in the final year. Interest is charged on the outstanding balance, so as the balance shrinks, less of each payment goes on interest and more goes on clearing capital.
How is mortgage interest calculated in the UK?
UK mortgage lenders charge interest on your outstanding balance, typically accruing daily and applying it to your account monthly (some apply it annually, which is worse for you as it doesn't reflect overpayments as quickly). The monthly annuity formula used to set your fixed payment amount assumes monthly compounding on the reducing balance, which is a close approximation of daily-accrual lenders in practice. Either way, the mechanics are the same: interest is calculated on what you currently owe, not on the original loan amount, which is why extra payments early in the term save more interest than the same payment made later.
Is it cheaper to shorten the term or overpay?
Both reduce total interest by the same underlying mechanism — paying down capital faster — but a formal term reduction locks in the lower balance and higher required payment, while overpaying keeps your contractual payment low and flexible (most UK lenders let you overpay up to 10% of the balance a year without an early repayment charge). If your income might dip, overpaying voluntarily is lower-risk than committing to a shorter term you must pay every month. If you want the discipline of a fixed end date and can comfortably afford the higher payment, shortening the term guarantees the saving. Use our overpayment calculator to compare the two on your own numbers.
Last updated: July 2026
