Repayment Mortgages
A repayment mortgage covers two things, the interest charged AND repayment of a portion of the capital borrowed.
This means that by the time the mortgage term ends, the loan is fully cleared and you own the property outright.
How a Repayment Mortgage Works
Every monthly payment has two parts: the interest on the loan amount and a capital repayment that reduces the balance. Early in the schedule, most of the instalment covers mortgage repayment interest.
In the final years, the capital share grows and the balance falls quickly. Because both parts are paid, you avoid owing a lump sum at the end of the mortgage.
Using a Mortgage Repayment Calculator
Open a mortgage repayment calculator and key in:
- Mortgage amount
- Interest rate
- Term length
The calculator assumes the same payment frequency and shows unrounded repayment figures, total interest and the split between capital and interest. Test different rates and term lengths to get a rough idea of how monthly mortgage repayments will change.
Factors That Shape Monthly Payments
| Factor | Impact on monthly payments |
|---|---|
| Interest rate | Lower rates mean lower payments and less total interest |
| Loan-to-value | Bigger deposits unlock lower interest rates |
| Mortgage term | Longer terms reduce each monthly repayment but increase total interest |
| Product fees | Adding fees to the loan increases the balance and the interest charged |
| Overpayments | Extra payments shorten the term and save interest |
Interest Rate Choices
Fixed-rate mortgages
A fixed-rate repayment mortgage locks your interest rate for a set period, usually two, three, five or ten years.
Your monthly payments stay exactly the same, which helps with budgeting and shields you from short-term interest rate changes. Because the rate does not move, you know the total interest you will pay during the fixed window.
When the fixed deal ends, the loan reverts to the lender’s standard variable rate unless you secure a new product. Always check early repayment charges on a fixed rate, as you may pay a fee if you clear the loan or switch deals mid-term.
Variable-rate mortgages
A variable-rate mortgage rises or falls whenever the lender updates its standard rate.
Your repayment amount can change several times a year, so use a mortgage repayment calculator to stress-test higher rates before you commit. Variable deals sometimes start with lower interest rates than fixed products, but the long-term cost is less predictable.
Many variable mortgages have no early repayment charges, giving flexibility to move if you find a better offer.
Tracker mortgages
Tracker products follow the Bank of England base rate plus a set margin, for example base rate plus 1.25 percent.
When the base rate moves, your mortgage rates adjust by the same amount, usually on the next monthly payment date. Trackers can be useful if you expect rates to fall or if you want clarity on how updates are calculated.
Some trackers include a collar that stops the rate dropping below a certain level, so read the small print.
How to choose the right rate
Compare exclusive rates from several mortgage lenders and look beyond the headline figure.
Add up any product fees, assess the impact on monthly mortgage repayments with a calculator and confirm the size of any early repayment charge.
Matching the rate type to your personal circumstances and future plans will save money over the full mortgage term.
Managing Your Mortgage Loan with Online Banking
Most lenders now provide secure online banking:
- View the current balance and the amount you borrowed.
- Download statements to track interest conversion over time.
- Use built-in calculators to model lump sum overpayments.
- Apply for a new deal when your fixed rate finishes.
Switching from interest only to repayment
If you currently hold an interest only mortgage, you can convert to a full capital repayment mortgage once your income supports the higher cost.
The lender will run a new affordability check, examine updated payslips and credit data, then issue revised monthly repayment figures. Making the switch adds long-term security because the repayment structure guarantees that the debt will clear by the end of the mortgage term.
Many borrowers move across in stages, first opting for a part-and-part product, half interest only, half repayment, before shifting fully to repayment when finances allow.
Overpayments and lump sums
Most mainstream lenders let you reduce the balance by up to ten per cent each year without triggering an early repayment charge.
Even a small extra payment each month or a one-off bonus can shave years off the schedule and save thousands in interest.
Before you act, read the product terms to confirm the exact overpayment allowance and whether it resets on the product anniversary or the calendar year.
Use an online calculator to check how the extra money alters the repayment amounts and brings forward the mortgage end date, then schedule the payment through your lender’s secure banking system for a seamless update.
Need Advice on Repayment Mortgages?
At The Mortgage Pod, we compare repayment mortgages from mainstream banks and specialist lenders, explain the costs and handle the application process from start to finish. Speak to one of our advisers today to find the right repayment mortgage for your budget.
How fast does the balance fall on a repayment mortgage?
The pace of capital reduction is slow in the early years because most of each monthly payment covers mortgage repayment interest on the amount you borrowed. As the mortgage term progresses and the capital repayment portion grows, the balance starts to fall more quickly. A mortgage repayment calculator can show this interest-to-capital conversion year by year, making it easier to visualise how much equity you build over time.
Is a shorter mortgage term always better?
Choosing a shorter term cuts the total interest paid because you repay the loan sooner, yet it also pushes monthly mortgage repayments higher. Before committing, compare the unrounded repayment for a shorter term against a longer term using a calculator, then balance the comfort of lower monthly payments against the overall cost. Aim for the shortest term you can afford without straining your day-to-day budget.
Can I make lump sum reductions on my repayment mortgage?
Most mainstream lenders allow you to overpay up to ten per cent of the outstanding balance each year without triggering early repayment charges. Making a lump sum or regular overpayments trims the mortgage term and saves interest, especially if you apply the money when interest charges are still a large part of the payment. Always check the product key facts to confirm the exact overpayment limit and whether unused allowance carries forward.
Does online banking help manage repayments?
Secure online banking portals and mobile apps give real-time access to your mortgage account. You can view every payment, download statements, and run built-in calculators that model how an extra lump sum or a rise in interest rate would affect future repayment amounts. When a fixed rate ends you can apply for a new deal or product transfer through the same secure login, making day-to-day mortgage management fast and paper-free.
Are repayment mortgages available for buy-to-let properties?
Yes, repayment mortgages are an option for buy-to-let, although many landlords prefer an interest only mortgage for cash-flow reasons. If you opt for a capital repayment mortgage on a rental property, lenders will check that projected rental income comfortably covers the higher monthly payments and still meets their interest coverage ratio. A broker can compare buy-to-let repayment rates and confirm whether the figures align with your long-term investment goals.
