Calculating Mortgage Interest – This is How It’s Done In The UK


Calculating mortgage interest can be complex from a financial perspective. This article provides UK property investors with TWO free mortgage interest calculators, together with detailed commentary and helpful explanations.

A mortgage interest calculator is an online financial tool that can help someone who is considering buying a property calculate the likely monthly repayments, given assumed interest rate and loan amounts.

Repayment Mortgage Calculator

Most mortgages are repayment mortgages. Each month the investor pays back a portion of the amount borrowed (known as the principal) plus interest every month. Your bank will use a formula to create a payment schedule that breaks down each payment into its principal and interest components.

If the investor makes payments according to the bank’s payment schedule, the loan will be fully paid off by the end of its set term.

For a given mortgage amount, the monthly payments to the lender will be higher for a repayment mortgage than for an interest only mortgage (see more below).

Total Mortgage Borrowing
Amount:
Length Of Mortgage
Years:
Interest Rate
Annual % rate:
Monthly payments £
Total interest payments £

Copyright: Property Investor Academy

Use Of This Calculator
1. This calculator is suitable for mortgages which do NOT have significant fees.
2. This calculator is NOT suitable for bridging or development finance.
3. The default values used should not be relied upon as indicators of market interest rates.

Interest Only Mortgage Calculator

As the name implies, this type of mortgage gives the investor the right to pay only interest every month.

If the investor make payments according to the bank’s payment schedule, the original amount borrowed will remain outstanding at the end of its set term. The investor does not build any equity in the property, and if the property declines in value, the investor could end up owing more than it is worth.

Total Mortgage Borrowing
Amount:
Length Of Mortgage
Years:
Interest Rate
Annual % rate:
Monthly payments £
Total interest payments £

Copyright: Property Investor Academy

Use Of This Calculator
1. This calculator is suitable for mortgages which do NOT have significant fees.
2. This calculator is NOT suitable for bridging or development finance.
3. The default values used should not be relied upon as indicators of market interest rates.

How Do Our Mortgage Interest Calculators Work?

Our repayment mortgage calculator works by asking for the following information:

  • loan amount
  • interest rate
  • repayment term in years

  • Once you have entered this information, the calculator will then provide an estimate of the monthly payment. In addition, it will calculate the mortgage interest paid over the life of the loan.

    Our mortgage calculators work on a monthly payment basis, which is the normal market practice in many countries.

    When using any mortgage calculator, it is important to remember that the figures you input are estimates. The actual repayment amount that you will end up paying may be different depending on a variety of factors, including the current interest rates and the property value. However, using a mortgage calculator can give you a very good idea of what your future monthly payments could be.

    Fixed Rate Mortgages

    A fixed rate mortgage is a mortgage where the interest rate is assured to stay unchanged for a fixed period of time.

    This can provide significant comfort because, unlike a variable rate mortgage, the investor knows precisely how much he or she needs to pay each month during this period.

    The longer the fixed rate period lasts, the higher the interest rate will be. This is because it is harder for the mortgage company to predict what will happen in the interest rate market over a longer period of time . Essentially the investor is paying for the guarantee that the rate will not go up.

    There could be early repayment charge if the investor wishes to leave the fixed rate deal early or pay off the mortgage.

    Most investors prefer a fixed rate mortgage when they anticipate a future increase in interest rates.

    Variable Rate Mortgages

    A variable rate mortgage is a mortgage where the interest rate is not fixed. Instead, interest payments will be adjusted at a level above a specific benchmark or reference rate. The rate is adjusted periodically to match current market interest rates .

    The advantage of a variable rate mortgage is that the interest rate can adjust downwards when interest rate fall. However, these rates can adjust upward as well, making the monthly payment higher.

    Variable rate mortgages are very different as compared to fixed rate mortgages, where the interest rate does not change.

    Most investors prefer a variable rate mortgage when they anticipate a future decline in interest rates.