Mortgage Repayments

Most UK mortgages are repayment mortgages where each monthly payment covers interest plus a portion of the capital borrowed. Early payments are mostly interest; later payments increasingly capital. On a £200,000 mortgage at 4% over 25 years, monthly payments are around £1,056. After 10 years, you'd have paid £126,720 but only reduced the balance by £51,000—the rest was interest. This is why overpaying early has such big impact.

With repayment mortgages, your payment covers both interest and capital. Early on, most goes to interest. As the balance reduces, more goes to capital. Interest-only mortgages mean you only pay interest—the capital stays unchanged and must be repaid at the end. Repayment mortgages are lower risk and build equity. Interest-only requires a credible repayment plan for the capital. Most lenders prefer or require repayment mortgages for residential properties.

Overpaying reduces your balance, meaning less interest charged overall, and you become mortgage-free sooner. On a £200,000 mortgage at 4% over 25 years, overpaying £100/month saves £28,000 in interest and clears it 4 years earlier. Overpaying £200/month saves £47,000 and finishes 7 years early. Most lenders allow 10% overpayments annually without penalty. It's one of the best guaranteed returns you can get—equivalent to a 4% tax-free savings rate in this example.

Payment holidays let you temporarily stop mortgage payments, usually 1-6 months. Interest still accrues, so your balance increases and future payments may rise. They're for temporary financial difficulty—job loss, illness, or emergencies. Not all lenders offer them and criteria vary. Some allow payment holidays if you've overpaid. During COVID-19, many lenders offered flexibility. If struggling, contact your lender immediately—they have obligations to help and offer solutions.

Contact your lender immediately—they can't help if they don't know. Options include: temporary payment reduction, switching to interest-only temporarily, extending your mortgage term, payment holidays, or restructuring your debt. Lenders prefer helping you stay in your home over repossession. They're regulated to treat customers in financial difficulty fairly. The earlier you communicate, the more options available. Never ignore the problem—it only gets worse and limits your options.

Extending your term reduces monthly payments but increases total interest paid. Reducing your term increases monthly payments but saves interest overall. Many people extend terms when remortgaging to reduce costs, especially if rates have risen. You can also extend temporarily during financial difficulty, then reduce again later. Most lenders allow term changes when remortgaging. Age limits apply—typically mortgages must end by 70-75, though some lenders go to 80-85.