How mortgage interest is calculated (UK): monthly interest vs total interest
Learn how mortgage interest is calculated in the UK: interest-only monthly interest, repayment amortisation, and why early payments are interest-heavy.
The two different “mortgage interest” questions people ask
When someone says “how much interest will I pay?”, they usually mean one of these:
- Monthly interest right now (often for interest-only mortgages): “What is the interest cost each month?”
- Total interest over time (repayment mortgages): “How much interest will I pay across the whole term, or the first 2–5 years?”
The calculation method depends on the question.
Monthly interest on an interest-only balance (simple estimate)
If your mortgage is interest-only and the balance does not reduce through monthly payments, a simple monthly interest estimate is:
Monthly interest ≈ balance × annual rate ÷ 12
Example
- Balance: £200,000
- Rate: 5.00% per year
Monthly interest ≈ £200,000 × 0.05 ÷ 12 = £833.33
This is still an estimate. Many lenders calculate interest daily and apply their own rounding.
Total interest on a repayment mortgage (amortisation)
A standard repayment mortgage has a fixed monthly payment (for a given rate and term) designed so the balance reaches zero at the end of the term.
Each payment is split into:
- interest due for the month, and
- principal repayment (which reduces the balance)
Early in the mortgage, the balance is high, so the interest portion tends to be larger. Later, the balance is lower, so more of the payment goes to principal.
The Money and Pensions Service mortgage repayment calculator transparency record describes the use of standard repayment modelling (amortisation) in this kind of estimation.
Why the first few years can be “interest heavy”
It’s not a trick; it’s just math.
Interest is charged on the remaining balance. When the balance is still close to the original loan amount, the monthly interest is higher.
As the balance is paid down, the interest charge reduces.
Worked example (illustrative)
Assume:
- Loan: £200,000
- Rate: 5.00% per year (fixed for illustration)
- Term: 25 years
A standard repayment model gives:
- monthly payment ≈ £1,169.18
- total interest over 25 years ≈ £150,754.02
- interest paid in the first 5 years ≈ £47,311.18
You can explore this interactively on the Mortgage interest calculator.
What changes the interest you pay most
- Interest rate
- Term length
- Overpayments (they reduce balance sooner, so interest has less time to accrue)
- Rate changes after a fixed period
What to do next
- Use the Mortgage interest calculator to estimate monthly interest, total interest, or interest over a period.
- Use Mortgage overpayment to see how overpayments can reduce interest.
- Use the main Mortgage calculator if you want to model price + deposit + totals.