What is the standard mortgage repayment formula?
For principal-and-interest loans, repayments come from loan amount, periodic interest rate and total number of repayment periods.
How to calculate mortgage payments
A practical formula walkthrough so you can validate repayment numbers and avoid bad budget assumptions.
Core formula
Repayment is determined by loan amount, periodic interest rate, and total number of periods. For principal-and-interest loans, use the annuity repayment formula.
Calculation flow
- Step 1: Loan amount = property price - deposit.
- Step 2: Periodic rate = annual rate / payments per year.
- Step 3: Periods = loan years x payments per year.
- Step 4: Compute repayment, then split each period into interest and principal.
- Step 5: Add extra repayment scenarios to quantify time and interest saved.
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FAQs
Why do early repayments include more interest?
Interest is calculated on outstanding balance, which is highest at the start. As principal falls, interest share declines over time.
How do extra repayments change the formula outcome?
Extra repayments reduce principal sooner, lowering future interest calculations and bringing forward the payoff date.