Mortgage Repayments: How Are They Calculated

There are a number of factors that affect what your mortgage repayments are likely to be, chief among them the amount you’re actually borrowing and the interest rate you end up with.

In this guide, you’ll find an overview of the factors that determine mortgage repayments, a handy calculator tool for working out yours and a series of repayment tables highlighting the amount you can expect to pay based on specific mortgage amounts and interest rates.

How to calculate your mortgage repayments

Use our mortgage calculator tool to get an idea of what your mortgage repayments could be based on the amount borrowed, interest rate and term length. Simply enter the amount you want to borrow along with a rate and term length to get some quick results.

What factors determine mortgage repayments?

First and foremost, the amount you can expect to pay back each month on your mortgage will depend on the amount of money you’ve borrowed, the term you agreed and the interest rate.

Taking out a mortgage with a longer term length means lower monthly capital repayments as the debt is spread out over a longer period, but this will mean paying more for your mortgage overall, since you’d have to make interest payments on top of that each month.

The interest rate you’ll ultimately end up with will depend on many variables, but generally speaking, the higher the level of risk, the higher the interest rate you’re likely to get. A mortgage lender might feel that the deal is risky due to factors related to your personal circumstances, because of the current market conditions, or a combination of both.

A mortgage broker can help you secure affordable mortgage repayments by making sure you end up with the most favourable rates and advising you on which product type to choose.

How interest rates are calculated

Mortgage interest rates are determined by the level of risk and the product type you choose.

You can lower the level of risk involved in the agreement by doing the following…

• Putting down extra deposit: Most mortgages require a deposit of at least 10%, but by putting down more than the minimum, you’ll boost your chances of landing a good rate.
• Resolve any bad credit issues: While it’s still possible to get a mortgage with certain types of bad credit, resolving any credit problems or debts you’re in a position to rectify can increase your chances of getting the best interest rate available.
• Speaking to a mortgage broker: A mortgage broker with the right knowledge and expertise will know exactly which lender is best placed to offer the most favourable rates to you. Getting the lowest rate around will, of course, mean paying out less each month.

In addition to the factors we’ve covered above, mortgage lenders might also offer you a higher interest rate if you’re retired, self-employed with complex income or limited income proof, or buying an unusual property – all of these are considered risk factors by some lenders.

How the mortgage type affects interest rates

There are a range of mortgage product types available and the one you choose can have a major impact on the interest rate, and therefore your monthly repayments.

• Fixed-rate: Your interest rate stays fixed for a certain period – this can be as little as one year to 10 years. Fixed-rates are often higher than variable rates because you’re paying for the security of knowing how much you’ll have to pay each month.
• Variable rate: A variable rate mortgage is one with an interest rate that could move up or down at any point during the duration of the term.
• Tracker rate: A tracker rate mortgage is a type of variable rate mortgage with an interest rate that’s tied to an external index, usually the Bank of England’s base rate.
• Interest-only mortgages: These come with the lowest monthly payments, as only the interest is due each month (capital repayments are usually optional). The mortgage debt itself must be paid at the end of the term using a pre-agreed repayment vehicle.
• Part-and-part mortgage: This is a middle ground between repayment and interest only where a portion of the mortgage is dedicated to each type. In other words, you will pay off some of the loan debt during the mortgage term, but the rest will remain at the end of the term.  Try our calculator below to find out what your repayments could look like if you choose this type of mortgage.

While mortgage calculators can be a good starting point for your mortgage plans, it’s a good idea to speak to a mortgage broker before you proceed with an application. They can provide you with more detailed calculations based on the interest rate you’ll qualify for, and help you make sure your mortgage repayments are as affordable as possible.

What to do after you have run your calculations

After you have run the calculations to get an idea of the amount you can borrow, your next step should be to speak to a mortgage broker to ensure that you get the best deal available. Make an enquiry with us and we will match you with your ideal mortgage advisor for free.

The right mortgage broker can help you make sure your mortgage repayments are as affordable as possible. They can do this by making sure you end up with the most competitive interest rate available, choose the right product type and agree a term length that’s right for you.

We offer a free broker-matching service that will take your needs and circumstances into account to pair you up with the advisor who’s best positioned to help you get the mortgage you need, namely one with favourable rates and affordable repayments.