How the payment is worked out
For a repayment mortgage the standard amortisation formula is used: M = P × r ÷ (1 − (1 + r)−n), where P is the loan, r is the monthly interest rate (annual rate ÷ 12) and n is the number of monthly payments.
For an interest-only mortgage the monthly payment is simply P × r, and the full loan is still owed at the end of the term.
Real mortgages usually have an initial fixed or tracker period, then move to a different rate, so treat this as an estimate. Lenders calculate interest in slightly different ways (daily or monthly), which can make small differences.
FAQs
Does this include arrangement fees?
No. Add any fee you are adding to the loan to the loan amount to see its effect.
Why is interest-only cheaper each month?
Because none of the loan is being paid off – you still owe the full amount at the end.