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Understanding mortgage repayments
A plain-English guide to how mortgage repayments work, what affects them, and how to read your results.
How mortgage repayments are calculated
Your monthly repayment depends on three things: how much you borrow, the interest rate, and how long you take to repay it. Lenders spread the interest across the term so that you pay a consistent amount each month, even though the balance you owe keeps falling.
Capital & interest vs interest-only
With capital and interest, each payment reduces what you owe, so the loan is fully repaid by the end of the term. With interest-only, you only pay the interest each month and the original loan amount is still owed at the end — common for buy-to-let mortgages where landlords plan to repay the capital by selling or remortgaging.
Frequently asked questions
Why does my balance fall slowly at first?
In the early years of a capital and interest mortgage, most of your payment goes toward interest because the outstanding balance is at its highest. As the balance reduces, a bigger share of each payment goes toward capital — so the balance falls faster in later years.
What happens when my fixed deal ends?
Unless you remortgage onto a new deal, you'll move onto your lender's standard variable rate (SVR), which is usually significantly higher. Most people switch to a new fixed or tracker deal before this happens.
Can I pay my mortgage off early?
Most lenders allow some overpayment each year without penalty, often up to 10% of the balance. Paying more than this, or repaying the full balance early, may trigger an early repayment charge during a fixed-rate period — check your mortgage offer for the specific terms.
This guide is for general information only and does not constitute financial advice. Always speak to a qualified mortgage adviser before proceeding.