On a £220,000 repayment mortgage at 4.2% over 25 years, you will pay approximately £133,000 in interest on top of repaying the £220,000 you borrowed — a total of £353,000 in payments. Most people know this is the case in principle, but few have sat with the mechanics of why. Understanding how interest is calculated — and how the split between interest and capital changes every month — is the foundation of every overpayment and remortgage decision you will make over the life of the loan.
How interest is calculated each month
Example: £220,000 balance × (4.2% ÷ 12) = £220,000 × 0.0035 = £770 interest in month 1
Monthly payment = £1,185 (fixed for the term)
Capital repaid in month 1 = £1,185 − £770 = £415
Outstanding balance after month 1 = £220,000 − £415 = £219,585
Most UK lenders calculate interest on a daily basis — the annual rate is divided by 365 and charged on the outstanding balance each day. The monthly payment then clears the accrued daily interest for the period plus reduces the capital. The practical effect is identical to monthly calculation for the vast majority of borrowers, but daily calculation means that any overpayment you make immediately reduces the outstanding balance and the interest accruing from the very next day.
Amortisation — how the interest/capital split changes over time
The process by which a loan is progressively repaid through regular payments is called amortisation. The key characteristic of amortisation is that it is front-loaded with interest — early payments are predominantly interest, late payments are predominantly capital repayment.
The bar chart makes the front-loading effect visceral. In year 1, roughly 65% of every payment goes to interest. By year 15, the split is approximately equal. By year 25, nearly all of the payment is capital repayment — but at that point, there is very little left to repay. This is why overpaying early in the mortgage has a disproportionately large impact on total interest paid: reducing the balance in year 2 saves you from paying interest on that amount for the remaining 23 years.
Overpaying £100 per month from day one of a £220,000 mortgage at 4.2% over 25 years saves approximately £18,000 in total interest and cuts about 3 years from the term. The same £100 per month starting from year 15 saves around £3,500 and cuts about 8 months. The earlier you overpay, the more each pound of overpayment is worth.
Amortisation breakdown calculator
Your mortgage — interest vs capital breakdown
See exactly how much interest you pay each year and when the balance falls below key thresholds.
| Year | Annual payment | Annual interest | Capital repaid | Balance remaining | % owned |
|---|
APR, AER, and headline rate — what each means
The interest rate during the fixed or promotional period — e.g. 4.2% for 5 years. This is what determines your monthly payment for the fixed period. Always quoted as an annual rate.
The total cost of the mortgage expressed as a percentage, including fees and the revert-to-SVR rate after the initial period. Useful for comparing total cost across products with different fee structures. Higher APR does not always mean worse value — it reflects the full cost over the mortgage term.
The rate your mortgage reverts to when the fixed period ends, if you do not remortgage. Typically 7–8.5% for UK lenders in 2026. Always remortgage before this applies — it is the most expensive rate on any mortgage offer.
When comparing two mortgage products, use the APR for like-for-like comparison — particularly when one has a larger arrangement fee. A product with a 4.0% rate and a £2,000 fee may have a higher APR than a 4.2% rate with no fee, depending on loan size and term. For smaller loans or shorter terms, the fee-free product often wins even at the nominally higher rate. Use the refinance savings calculator to compare total cost including fees.
Frequently asked questions
Why does my mortgage balance seem to barely move in the early years?
Because in the early years of a standard repayment mortgage, the vast majority of each payment is interest. On a £220,000 mortgage at 4.2%, approximately £770 of the £1,185 monthly payment goes to interest in month 1 — only £415 reduces the balance. It takes until around year 13–14 before capital repayment starts to dominate the monthly payment. This is mathematically correct and not a feature of any particular lender — it is an inherent property of how amortisation works. The balance does reduce every month, just slowly at first. Use the amortisation table above to see the exact balance at any point in your term.
If I overpay, does all the overpayment reduce the capital?
Yes — any amount you pay above the standard monthly payment goes entirely toward reducing the outstanding capital balance (assuming your lender has processed the payment correctly and it is not held as a credit against future payments). With most lenders, the overpayment reduces the balance immediately — and because UK lenders calculate interest daily on the outstanding balance, that reduction starts saving you interest from the very next day. Most fixed-rate mortgages allow overpayments of up to 10% of the outstanding balance per year without incurring early repayment charges. Check your mortgage offer for your specific allowance.
Does interest work differently on an interest-only mortgage?
On an interest-only mortgage, each monthly payment covers only the interest — the capital balance remains constant throughout the term. Using the same example: a £220,000 loan at 4.2% on interest-only would cost £770/month (just the interest), compared to £1,185/month on repayment. At the end of the 25-year term, the full £220,000 capital is still outstanding and must be repaid. The total interest paid over 25 years on interest-only is approximately £231,000 — versus £133,000 on repayment. Interest-only is common for buy-to-let investors but rare for residential owner-occupiers since 2014 mortgage regulation changes.
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