Mortgage Calculator

About the Mortgage Calculator

Most mortgage calculators answer a question nobody asked. They tell you the loan payment — and then you get the first bill and it is several hundred more.

The loan payment is only part of what leaves your account. Property tax, buildings insurance, mortgage insurance and any service charge are collected alongside it, and none of them reduce the balance. On a typical purchase they add about a fifth again to the figure. This calculator gives you the whole number, broken into its parts, so you can see which pieces are the loan and which are the cost of owning the thing.

How to Use the Mortgage Calculator

Enter the property price and your deposit. The difference is what you borrow, and the ratio between them is the loan-to-value — the single number that decides whether mortgage insurance applies.

Add the rate and term. Then the annual property tax and insurance figures, which are divided by twelve.

The mortgage insurance rate is charged annually on the loan while the balance is above 80% of the property value. Set it to zero if your lender does not charge it. Anything left over — association fees, ground rent, a service charge — goes in the last field.

How the Monthly Cost Is Built

Five separate things are added together, and only the first is a loan.

Principal and interest is the amortising payment: the fixed amount that clears the balance exactly over the term.

Property tax and insurance are annual bills collected monthly, usually into an escrow account the lender holds.

Mortgage insurance protects the lender, not you, and applies only while the loan is large relative to the property.

Service charges are whatever the building or estate levies.

Of these, only the principal and interest is fixed by your mortgage agreement. Tax and insurance are reassessed and generally rise.

The Payment Formula

             r
  P = A × ─────────
          1 − (1+r)⁻ⁿ

  A = amount borrowed (price − deposit)
  r = annual rate ÷ 12
  n = number of monthly payments

The rest is division. Annual tax and insurance are divided by twelve; mortgage insurance is the annual rate applied to the loan, also divided by twelve.

At a zero rate the formula divides by zero, so that case is handled separately: with no interest, the payment is the amount shared equally across the months.

Loan-to-Value, and Why the Deposit Does More Than You Think

Loan-to-value is the loan as a percentage of the price. A £32,000 deposit on a £320,000 property is a 90% LTV.

The deposit is not merely a discount on the amount borrowed. It decides two other things:

Whether mortgage insurance applies at all. Most lenders charge it above 80% and drop it below.

What rate you are offered. Lenders price in bands, and each band down is usually worth a fraction of a percentage point.

Here is what doubling the deposit does on £320,000 at 6% over 30 years:

An extra £32,000 of deposit reduces the payment by £311.86 a month, saves £37,065.90 in interest and removes £10,680 of mortgage insurance. That is close to £47,746 of saving for £32,000 put in — and this is before any improvement in the rate that crossing the band would bring.

When the Mortgage Insurance Stops

Mortgage insurance is not permanent, and quoting it as a fixed monthly cost for thirty years overstates it badly.

It is charged while the balance is above 80% of the property value. Your balance falls every month, so there is a specific payment at which it crosses that line. This calculator walks your actual schedule to find it.

On the example above, the balance reaches £256,000 at payment 89 — seven years and five months in. After that the £120 a month falls away and the payment drops to £2,093.38. Over those 89 payments the insurance will have cost £10,680.

That is a real cost, and it is also a finite one with a date attached.

Step-by-Step Example

£320,000 property, £32,000 deposit, 6% over 30 years. Property tax £3,200 a year, insurance £1,200 a year, mortgage insurance 0.5%.

  Borrowed:      320,000 − 32,000 = 288,000   (90% LTV)
  Monthly rate:  6% ÷ 12 = 0.5%
  Payments:      30 × 12 = 360

  P&I  = 288,000 × 0.005 ÷ (1 − 1.005⁻³⁶⁰) = 1,726.71
  Tax  = 3,200 ÷ 12                        =   266.67
  Ins  = 1,200 ÷ 12                        =   100.00
  MI   = 288,000 × 0.5% ÷ 12               =   120.00
                                             ─────────
  Monthly cost                               2,213.38

The loan is £1,726.71 of that. The other £486.67 — 22% of what you pay — never touches the balance.

The first payment, split:

  Interest:  288,000 × 0.5% = 1,440.00
  Principal: 1,726.71 − 1,440.00 = 286.71

83% of the loan payment is interest in month one. Over the full term the interest comes to £333,611.40, which means the £320,000 property costs £653,611.40.

Understanding Your Result

The monthly cost is everything, and it is the figure to test against your income.

What it is made of separates the loan from the rest. The gap between them is what most calculators leave out.

The loan gives the amount borrowed and the loan-to-value, which is the number a lender will quote a rate against.

Interest is the total over the term, and the true cost of the property once the credit is included.

Worth knowing carries the mortgage insurance position: whether it applies, when it stops and what the payment becomes.

When Should You Use This Calculator?

Before viewing properties. Knowing your real monthly ceiling stops you falling for something a bare loan payment made look affordable.

Deciding how much deposit to put down. The table above is the argument for finding a little more, and the effect of crossing 80% is larger than most people expect.

Comparing a 15-year against a 30-year term. On this example the shorter term costs £2,916.98 a month rather than £2,213.38, but the total interest falls from £333,611 to £149,455.

Checking a lender's illustration. If their number differs, the gap is usually fees, a different tax estimate, or insurance — and it is worth asking which.

Working out when your payment will drop. The mortgage insurance date is a genuine future saving you can plan around.

Common Mistakes

Budgeting from the loan payment. It is not what you will pay. Use the full monthly cost.

Treating mortgage insurance as permanent. It has an end date, and knowing it changes the comparison between a bigger deposit and a smaller one.

Assuming tax and insurance stay put. They are reassessed and generally rise, even on a fixed rate. Only the loan part is fixed.

Comparing monthly payments across different terms. A longer term always looks cheaper monthly and is almost always dearer overall.

Forgetting the costs of buying. Legal fees, survey, stamp duty or transfer tax and moving costs are not in any monthly figure and are usually owed up front.

Ignoring the rate band. A deposit a few thousand short of the next loan-to-value band can cost a fraction of a percent for the whole term — which on thirty years is not a small number.

Reading this as an offer. A lender assesses affordability, credit history and the property itself, and may offer a different rate or decline. Every figure here is an estimate for planning.