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How Are Mortgages Calculated?

Understanding mortgage repayments

Taking that first tentative step onto the housing ladder is a big deal.  And if you need a mortgage, there’s a lot to consider as you navigate the complexities of a mortgage application. One of the key considerations involved with a mortgage is your ability to repay the mortgage through monthly installments. 

When you secure a standard mortgage, you receive the funds on the basis that you will make monthly mortgage payments to the lender for the duration of the mortgage term. Once all payments are made, the mortgage is redeemed and the lender’s charge is removed.

How to calculate mortgage repayments

Your mortgage repayments will be calculated by your lender in conjunction with our mortgage advisors. Our team will establish your monthly budget to see what you can afford, and then they’ll ensure that the monthly mortgage payments fall within this. 

Your mortgage payments consist of several elements, – a payment towards the original amount borrowed (the principal), a payment towards the interest (the banks charge for the loan) and if you added your mortgage fees to the loan you’ll also be paying these off too. 

With a fixed-rate mortgage, your payments will remain the same each month and repay both the interest and the principal. The interest charged is based on the principal balance, so as this reduces the interest reduces too. Over time, the part of your repayment that repays your interest goes down and more goes towards repaying the principal.

Why does the duration of your mortgage loan impact your repayments?

The duration of your mortgage loan is a key factor in calculating your mortgage repayments. The longer the term, the lower your payments will be as you spread the cost of your loan over more payments. It’s worth noting that the longer the term of your mortgage, the higher the monthly interest costs will be because interest is charged over the duration of the term. Where possible for residential mortgages, it’s best to take out the mortgage only for the minimum term you need so that you don’t pay out more in interest than you need to.

Interest rates & monthly mortgage payments

Your choice of products throughout your mortgage term will also affect your mortgage payments. You’ll usually choose a specific mortgage deal for 2-5 years (although 10-year products are occasionally available) and this deal will set out how much interest you pay for the duration of the mortgage product.  Typically, you can choose either a fixed rate or a variable rate mortgage, and we’ve explained both below:

Fixed rate mortgages

Fixed rates offer you a set rate for the mortgage product term (e.g. 5 years) and your payment throughout this time will remain unchanged. 

Variable rate mortgages

Variable rates usually track above or below another rate and can go up and down throughout the mortgage term.  Your interest rate impacts your mortgage payments, so the higher the interest rate is, the higher your mortgage payment will be and vice versa. 

What is classed as a ‘good’ interest amount for a mortgage?

Most buyers and those remortgaging will aim to choose the lowest rates possible to minimise the interest charged. Some low interest rate mortgage products do have fees, and these can be quite high. It can sometimes be worth taking out a slightly higher interest rate product with no fees, than a low-interest product with high fees (if you are unable to pay the fees outright and have to add to your mortgage). Our team is happy to advise you and will recommend the cheapest overall product that meets your situation and needs.

Get expert advice on securing the right mortgage for you from a trusted advisor

With over 20 years of experience, Simple Fast Mortgage can help you find the mortgage that’s right for you. Our trusted advisors will jump on a call with you to discuss your current circumstances and help you work out your budget. We’ll also discuss your long-term goals to help you choose a mortgage and mortgage product that’s suitable for your plans. 

Our advisors have access to a range of lenders and an extensive variety of mortgage products, so we’ll ensure that we find the right fit for your individual needs. The market is always changing, but we never stop working for you, and we can use our industry connections to help you secure the deal that is the best fit for your situation. Get in touch with our friendly team to start your mortgage application today.


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