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How is mortgage interest calculated?

If maths isn’t your forte, working out how mortgage interest rates are calculated isn’t always the easiest thing to do. Read on if you want to find out how!

Unfortunately, when we sign off on our mortgages, we aren’t given a magical mortgage interest calculator that tells us what we’re going to be paying at every single point over our mortgage term. So, how do you work it out? Well, over this article we’re going to show you how mortgage interest rates are calculated so you can stay on top of your mortgage repayments. Let’s get started!

What types of mortgage rates are there?

When you’re seeking out a mortgage deal, it’s important for you to know that there are two main types of mortgage rates. If you are in the offing of your mortgage term or your introductory period, you may opt for a fixed rate mortgage. This means that your mortgage rate will stay the same for a number of years. During this, you’ll be paying the same amount on your monthly repayments.

These are a great option for first-time buyers as they provide you with financial certainty as you make your first foray into the property market. Also, since you’ll know exactly what your monthly mortgage repayments are throughout your fixed rate mortgage, you won’t need a mortgage interest calculator past the first payment!

Alternatively, you may go on to a variable rate mortgage. This is where your mortgage interest calculator might come in handy as these rates change over time. This is largely dependent on the base rate set by the Bank of England. This means that if the base rate increases then so too will mortgage interest rates and vice versa.

What should I look out for?

When you’re looking for mortgage deals, especially fixed-rate deals, a lot of lenders try to undercut each other as a means of attracting new customers. So, what we recommend you do is look at the time that certainly fixed rate deals last for and the rate that they have. For example, ask yourself whether it would be better to go with a smaller rate, which is fixed for a shorter period of time? Or opt for a slightly larger rate, which runs for a longer period of time? Also, fees added when you take a new deal really have an affect.

The affect over adding a £2000 fee to a small loan is massive as opposed to adding the same fee to a large loan. Lenders balance rates with fees. Are you better taking a two year fixed rate of 2.49% with a £1999 fee or a 2.79% rate with a £999 fee. This very much depends on the loan size but you could find that over the two year period the savings to be had on the lower rate don't offset the cost of the fee.

Your decision may also be dependent on what the base rate is at the moment. While we can tell you that interest rates are currently low, following Great Britain’s supposed exit from the EU, interest rates are likely to increase. So, bear that in mind when you’re making a decision as it’s going to affect the numbers you put into your mortgage interest calculator! 

As a capital & interest mortgage is on whats known as a compound interest rate then the only easy way to get any sort of result on payments is to google Compound Interest calculator !!!

How we can help at Mortgages Online:

At Mortgages Online our team of experts can help find the best mortgage deal for you and help you to work out what the best rates are using our own mortgage interest calculator!


Laura Waller

Laura Waller has been working in the mortgages industry since 2013, joining an independent brokerage in Essex. Laura has CeMAP 2 & 3 – Certificates in Mortgages Advice and Practice. Since then Laura oversees marketing for Mortgages Online, using her experience and expertise to write articles and blogs about mortgages and related topics.

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