Use this mortgage calculator to estimate your monthly mortgage payments based on the property value, deposit, interest rate, and loan term.

Mortgage Calculation Formula

The following formula is used to calculate the monthly mortgage payment:

Monthly Payment = (Loan Amount * Monthly Interest Rate) / (1 - (1 + Monthly Interest Rate)^(-Total Number of Payments))

Variables:

  • Loan Amount is the total amount borrowed (£)
  • Monthly Interest Rate is the annual interest rate divided by 12
  • Total Number of Payments is the loan term in years multiplied by 12

To calculate the monthly payment, multiply the loan amount by the monthly interest rate and divide by the difference of one minus the result of (1 + monthly interest rate) raised to the power of negative total number of payments.

What is a Mortgage?

A mortgage is a loan specifically used to purchase real estate, where the property itself serves as collateral. Mortgages are typically paid back over a long period, often 15 to 30 years, with monthly payments that include both principal and interest.

How to Calculate Monthly Mortgage Payments?

The following steps outline how to calculate your monthly mortgage payments using the given formula:


  1. Determine the property value and the amount of deposit you can afford.
  2. Calculate the loan amount by subtracting the deposit from the property value.
  3. Identify the interest rate and convert it to a monthly rate by dividing by 12.
  4. Determine the loan term in years and convert it to the total number of monthly payments by multiplying by 12.
  5. Use the mortgage calculation formula to find the monthly payment.
  6. For a more comprehensive view, consider additional costs such as insurance and other fees.

Example Problem:

Use the following variables as an example problem to test your knowledge:

Property Value = £250,000

Deposit = £50,000

Interest Rate = 3%

Loan Term = 25 years

FAQ

1. What is a fixed-rate mortgage?

A fixed-rate mortgage is a loan where the interest rate remains the same throughout the term of the loan, providing predictable monthly payments.

2. What is a variable-rate mortgage?

A variable-rate mortgage has an interest rate that can change over time, which means monthly payments can fluctuate based on market conditions.

3. How much deposit do I need for a mortgage?

Typically, a deposit of at least 5% to 20% of the property value is required, but this can vary based on the lender and the type of mortgage.

4. Can I pay off my mortgage early?

Many lenders allow early repayment of a mortgage, but there may be penalties or fees associated with doing so. It’s important to check your mortgage agreement.

5. What happens if I miss a mortgage payment?

Missing a mortgage payment can lead to late fees and negatively impact your credit score. If you miss multiple payments, the lender may initiate foreclosure proceedings.