Loan calculator · mortgage
Loan calculator – monthly payment, interest and rate risk
Work out the monthly payment, the total interest and the amount you repay. The calculator also shows what a two-percentage-point rate rise would mean for your payment – the usual stress test that lenders apply.
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Repayment or equal instalment?
The repayment method decides how each payment splits between interest and capital.
| Repayment (annuity) | Equal instalment | |
|---|---|---|
| Monthly payment | The same for the whole term (if the rate doesn't change) | Largest at the start, falls every month |
| Early payment | Smaller | Larger |
| Total interest | More | Less |
| Suits when | A predictable budget matters | There's room at the start and you want to save on interest |
| If rates rise | The payment rises or the term lengthens | The payment rises |
The monthly payment on a repayment loan is worked out with a formula in which i is the monthly rate and n the number of months:
payment = principal × i / (1 − (1 + i)^−n)
On an equal-instalment loan the capital repayment is the same each month (principal / n) and interest
is always charged on the balance remaining, so the first payment is the largest.
The effect of the term
Lengthening the term lightens the monthly payment but clearly increases the total interest. Example: £180,000 as a repayment loan at 3.5%.
| Term | Monthly payment | Total interest | Total repaid |
|---|---|---|---|
| 15 years | £1,286.79 | £51,622 | £231,622 |
| 20 years | £1,043.93 | £70,543 | £250,543 |
| 25 years | £901.12 | £90,337 | £270,337 |
| 30 years | £808.28 | £110,981 | £290,981 |
Extending from 25 to 30 years lightens the payment by about £93 a month but costs roughly £20,600 more in interest. A ten-year extension from 20 to 30 years lightens the payment by about £236 and costs roughly £40,400 more. The figures are worked out with the calculator on this page; your own figure may differ from a lender's offer because of fees and interest periods.
The cost of a payment holiday
A payment holiday eases the budget for a while, but it isn't free. During the break you pay interest only, so the balance doesn't fall at all – and because interest is always charged on the balance remaining, the total interest on the rest of the loan grows.
Example: on a £180,000 loan at 3.5%, a six-month payment holiday means an interest-only payment of about £525 instead of the usual £901. That's a saving of about £376 a month, i.e. £2,256 over six months. In return the term lengthens by six months and several thousand pounds more interest accrues.
So a payment holiday is best thought of as a short-term flexibility – for example during family leave or unemployment – not as a way to lighten the monthly budget permanently.
Overpayments and their effect
An overpayment cuts interest most effectively early in the term, because that's when the balance remaining is at its largest. You can estimate the effect with the calculator: subtract the overpayment from the loan amount and run the calculation again over the same term. The difference in total interest is what you save.
Lenders usually offer two options: either the monthly payment falls and the term stays the same, or the payment stays and the term shortens. The latter saves more interest. Always check whether your agreement has any limits or charges on overpayments.
How big a loan is too big?
Lenders use two rough measures in a lending decision, and both are percentage calculations. Loan-to-income (LTI) compares the total borrowing to gross annual income: a £200,000 loan and £45,000 of annual income is a multiple of about 4.4×. Many lenders treat around 4.5× as a cap, above which they lend only for a good reason.
The affordability ratio tells you how much of your net income goes on servicing the loan as
rates rise. When the stress-tested monthly payment is £1,100 and net income is £2,600, the ratio is
1,100 / 2,600 × 100 = 42%. A figure around 40% is often used as a practical guide.
You can work out both figures easily with the percentage calculator: choose What percentage? and enter the part and the total. These are only guidelines, though – the actual credit decision is made by the lender on its own criteria.
Interest-rate risk: what if rates rise
Most UK mortgages are eventually on a variable rate – a tracker or the lender's standard variable rate – reviewed at set intervals. So the monthly payment isn't fixed for the whole term, even though a repayment loan makes it feel that way while a fixed period lasts. The calculator shows a "If the rate rises +2 pp" row, which gives the payment at the new rate.
A practical rule of thumb: be ready for the payment to rise by a quarter. If that won't fit the budget, consider a smaller loan, a longer term or a longer fixed period. Lenders do the same calculation for a lending decision, often at an even harsher rate.
The calculator gives an indicative estimate. It doesn't include arrangement fees, account charges, insurance or payment holidays, and it is not a loan offer or advice about borrowing. Compare offers on the APRC and ask the lender for an official illustration.
The basics of loan calculation
The monthly payment depends on the loan amount, the rate, the term and the repayment method. The total cost matters more than the size of the payment.
Formulas and examples
Repayment (annuity) payment
P × i / (1 − (1 + i)^−n)Example
£180,000, 3.5%, 25 yr: £901.12/mo, total interest £90,337.
Note
i = annual rate / 12, n = number of months.
First equal-instalment payment
P / n + P × iExample
£180,000, 3.5%, 25 yr: £1,125.00, total interest £79,013.
Note
The payment falls each month, but less interest accrues.
Effect of the term
compare the total, not the paymentExample
25 yr → 30 yr lightens the payment by £93 but costs about £20,600 more.
Note
Longer term = smaller payment = more interest.
Rate-risk stress test
payment at (rate + 2 percentage points)Example
The same loan at 5.5%: the payment rises to about £1,105.
Note
Lenders use the same test in a lending decision.
Concepts and classification
| Repayment (annuity) | The payment stays the same; the interest share falls over time. |
|---|---|
| Equal instalment | The capital repayment stays the same; the payment falls. |
| Fixed payment | The payment is locked and the term flexes with the rate. |
| Loan-to-income | Borrowing relative to gross annual income. |
| Payment holiday | A period paying interest only. Lengthens the term. |
Limitations of the calculator
- Arrangement fees, account charges and insurance are not taken into account.
- The calculator assumes the rate stays the same for the whole term.
- Payment holidays and overpayments are not modelled automatically.
- The result is not a loan offer or a credit decision.
How up to date the information is
When it was checked
Content and the percentages used were checked on 12 August 2026.
Disclaimer
The calculator gives a mathematical result from the numbers you enter. It is not an official decision, an offer or professional advice. See the terms of use.
Topics
This calculator belongs to the following topic areas. On the topic page you'll find all the calculators and guides on the same theme in one place.
Money calculators
Frequently asked questions about the loan calculator
How is a loan's monthly payment worked out?
On a repayment (annuity) loan the formula is principal × i / (1 − (1 + i)^−n), where i is the monthly rate (annual rate divided by twelve) and n is the number of months. On an equal-instalment loan the capital repayment is constant and interest is charged on the balance remaining.
Which is cheaper, a repayment or an equal-instalment loan?
An equal-instalment loan costs less in interest, because the balance falls faster from the start. In return the first payments are larger. A repayment (annuity) loan is more predictable, but the total interest is higher.
How does the term affect the interest?
A longer term lowers the monthly payment but increases the total interest. On a £180,000 loan at 3.5%, moving from 20 to 30 years lowers the payment by about £236 but costs roughly £40,000 more in interest.
What does interest-rate risk mean?
On a variable-rate loan the rate is reviewed at set intervals. If rates rise, the monthly payment goes up or the term lengthens. The calculator shows the payment at a rate two percentage points higher too.
Is this a loan offer?
No. The calculator is a mathematical tool and does not account for a lender's fees, security or a credit decision. Compare offers on the APRC and ask the lender for an official illustration.