The formula lenders use to work out monthly repayment mortgage payments, a worked UK example, how interest and capital change over time, and how rate, term, overpayments and interest-only affect what you pay.
Monthly mortgage payments can look like a number the lender picks, but they come from a standard formula. Understanding it helps you compare deals, see the real effect of a longer term, and decide whether overpaying is worth it. The figures below are illustrations, not quotes.
The formula
For a repayment (capital and interest) mortgage, the monthly payment is:
M = P × r × (1 + r)n ÷ ((1 + r)n − 1)
- P is the amount borrowed;
- r is the monthly interest rate (the annual rate divided by 12, as a decimal);
- n is the number of monthly payments (years × 12).
Real lenders may calculate interest daily or monthly and round slightly differently, so their figures can differ by a few pounds.
A worked example
Borrowing £200,000 at 4.5% over 25 years:
- r = 0.045 ÷ 12 = 0.00375
- n = 25 × 12 = 300
- M ≈ £1,112 a month
Over the full term you'd pay about £333,500 in total, of which about £133,500 is interest, assuming the rate stayed at 4.5% throughout. In practice, rates change whenever your deal ends.
How interest and capital change over time?
Each month, interest is charged on the balance still owed. In the first month of the example, interest is £200,000 × 0.00375 = £750, so only about £362 of your £1,112 payment reduces the debt. As the balance falls, less goes on interest and more on capital. This is why the balance falls slowly at first and faster towards the end, and why overpayments early on save the most interest.
What changes the payment?
Interest rate
At 5.5% instead of 4.5%, the same £200,000 over 25 years costs about £1,228 a month, roughly £116 more.
Term
Stretching the example to 35 years cuts the payment to about £947 a month, but total interest rises to about £197,500, roughly £64,000 more than over 25 years. A longer term makes payments more affordable but costs more overall, and may run past your retirement age, which lenders will consider.
Interest-only
On interest-only, you'd pay just the interest, £750 a month in the example, but still owe the full £200,000 at the end. Lenders require a credible plan to repay it.
Overpayments
Paying extra reduces the balance, so less interest is charged from then on. You can usually choose to shorten the term or reduce the monthly payment. Most fixed and tracker deals allow overpayments of up to 10% of the balance a year without an early repayment charge, but check your own terms.
Fees and the true cost
The monthly payment doesn't show arrangement fees, valuation fees or broker fees. A deal with a lower rate but a £999 fee can cost more than a higher-rate, no-fee deal, especially on smaller loans. Compare the total cost over the deal period. The APRC on a mortgage illustration shows the overall cost over the full term, but it assumes you move onto the lender's standard variable rate after the deal, which most people avoid by remortgaging.
Check it yourself
You can reproduce the formula in a spreadsheet with the PMT function: =PMT(4.5%/12, 300, -200000) returns about £1,111.66. Change the rate, term or loan to test scenarios.
Frequently asked questions
Why does my lender's figure differ slightly?
Different interest calculation methods and rounding. Differences should be small.
Does a bigger deposit reduce my payment?
Yes, by reducing P, and often by unlocking lower rates at lower loan-to-value bands.
Sources and further reading
Facts checked on 20 October 2026. Spotted an error? Tell us and we will correct it.