Expenses factored into mortgage costs

Property value: This is the total amount you’ll pay for a home. The property value directly impacts your mortgage amount, monthly mortgage repayments, and overall costs. When choosing a home, consider other expenses like stamp duty, survey fees, and legal fees to remain within your budget.

Deposit: When buying a home, you’ll need to pay a percentage of the total property value upfront, otherwise known as a deposit. A higher deposit reduces your mortgage amount and lowers monthly repayments, while a smaller deposit increases these these costs.

Interest rate: An interest rate is the percentage of the mortgage amount that the lender will charge you for borrowing money, affecting how much you repay each month. A lower rate reduces your total loan cost, while a higher rate increases it.

Mortgage term: The mortgage term is the time it will take to repay the mortgage. You can select mortgage terms anywhere between 10 40 years. A shorter term will have higher monthly repayments but less interest paid overall. However, a longer term lowers mortgage repayments and increases total interest costs.

MIG: A mortgage indemnity guarantee (MIG) is a lender protection insurance policy that is required when a borrower's loan-to-value ratio exceeds 75%. MIGs help you secure larger mortgages with smaller deposits, but lenders may charge an upfront fee or increase your mortgage rate. This protects the lender by covering potential losses if you are unable to repay.

Arrangement fees: Arrangement fees are lender charges for setting up a mortgage. They can range from 0.5% to 1% of the mortgage amount. You can choose to pay the fee upfront or add it to the mortgage, increasing overall costs. Compare both interest rates and arrangement fees to get the best deal.

Mortgage payment formula

This formula helps you figure out your monthly mortgage repayments based only on the mortgage amount, interest rate, and mortgage term. It does not include any additional costs like council tax, buildings insurance, or arrangement fees that may increase your total monthly repayments.

Manually calculate your monthly mortgage repayments with this formula:

Here’s the breakdown:

M = Monthly repayments:
This is what you’re solving for. To get started, gather your mortgage details. These factors will determine how much you'll repay each month.

P = Principal amount:
This is the outstanding mortgage balance, or the total amount that you still owe on your mortgage. Your mortgage balance directly impacts your monthly repayments, interest costs, and home equity. You'll build more ownership in your property as the balance decreases.

r = Monthly interest rate:
The mortgage interest rate is an annual rate that will be paid monthly over the course of the year. To find the monthly interest rate, divide the annual percentage by the number of months in a year. For example, if your annual interest rate is 5%, this would look like 0.05/12 = 0.004167.

n = Number of repayments:
This is the total number of monthly repayments you will make over your mortgage term. To find the total amount, multiply your mortgage term in years by 12. For example, if your mortgage term is 25 years, this would look like 25x12 = 300. This means that you will make a total of 300 repayments throughout your mortgage term.

Common mortgage types

Mortgages are determined by their interest rate structure, such as fixed or variable mortgages, or their repayment method, like repayment or interest-only. Common mortgage types include fixed-rate, discount, and tracker mortgages.

Mortgage repayment types

Mortgage repayment types refer to the different methods of repaying the mortgage loan.

Repayment mortgage: A repayment mortgage is a mortgage type where your monthly payments will cover both the loan amount and interest. This mortgage type is meant for buyers who want the mortgage to be repaid in full by the end of the term.

Interest-only mortgage: Interest-only mortgages require that you only pay the interest each month, while the mortgage amount remains unchanged. You'll have to pay off a large lump sum at the end of the mortgage term, typically using savings, investments, or the sale of the property.

Mortgage interest types

This is how the interest rate will be applied to the mortgage, affecting whether the rate will remain the same or fluctuate throughout the term.

Fixed-rate mortgage: In a fixed-rate mortgage, the interest will remain the same for a set period, typically 2 to 5 years. Because of this, monthly repayments remain consistent and predictable. When the set period is over, you must choose to remortgage to secure a new fixed deal. Otherwise, the mortgage will revert to the lender's standard variable rate (SVR), which is often higher.

Variable-rate mortgage: A variable-rate mortgage is a type of mortgage where the interest rate can fluctuate over time, meaning monthly repayments may go up or down. Variable rates fluctuate based on a rate set by the lender or a reference rate from an external source, like the Bank of England.

1. Standard variable rate (SVR)
The standard variable rate (SVR) is a type of variable-rate mortgage the lender will default you to once your fixed-rate mortgage ends. The interest rate is set by the lender and often results in paying higher rates, although it can increase or decrease at any time.

2. Discount mortgage
This is a type of variable-rate mortgage, based on a discounted rate from the lender's SVR for a fixed period, typically 2 to 5 years. When the discount ends, the mortgage reverts back to the SVR.

3. Tracker mortgage
A tracker mortgage is another type of variable-rate mortgage where the interest rate follows the Bank of England's base rate plus a set percentage. These typically last for 2 to 5 years with rates increasing or decreasing based on market conditions.

Additional fees and taxes when purchasing property

Surveyor’s fee: Before you purchase property, you may want to hire a surveyor to assess the condition and value of the home. While this is optional, it is recommended to help you avoid any unexpected repair costs and ensure that the property value is accurate. Fees may vary depending of the type of survey conducted.

Legal and conveyancing fees: Legal fees refer to the costs paid to a licensed conveyancer for handling the legal aspect of buying a property. These fees typically cover property searches, contract drafting, land registry registration, and handling the transfer of funds.

Buildings insurance: Lenders may require you to have buildings insurance to cover the structure of the property against damage from fire, floods, storms, or more disasters. This is requirement is typically a condition of the mortgage, but you can choose different levels of cover and cost based on your property.

Stamp duty land tax: Stamp duty land tax (SDLT) is a one-time payment paid once the property purchase is completed. The amount of tax you will have to pay depends on your home price and the mortgage type. Buyers have within 30 days of purchasing the home to pay. First-time homebuyers may not have to pay SDLT on properties up to a certain value.

Council tax: Council tax is a local tax based on the valuation band your property is in. It helps fund waste collection, street maintenance, local education, and other community services. You can pay this tax annually or split into monthly repayments, typically 10 or 12 months.

Next steps after calculating your mortgage repayments

After you've estimated your mortgage repayments, follow these steps to move forward with your property purchase.

Step 1: Compare mortgage options, interest rates, and fees from different sources to find the best deal for your needs.

Step 2: Get an agreement in principle. This is a conditional mortgage approval from a lender that gives you an estimate of how much you can borrow.

Step 3: Start shopping for a home. Once you find a home, make an offer through an estate agent and negotiate the best deal with the seller.

Step 4: Once your offer is accepted, you can formally apply for a mortgage. The lender will check your finances and arrange a property valuation to make sure that the home is worth the mortgage amount.

Step 5: Hire a conveyancer. They will handle the legal checks, property searches, and contracts to make sure there are no legal issues with the home.

Step 6: Exchange contracts and pay your deposit. Once legal checks are complete, you'll pay the deposit and make the sale legally binding.

Step 7: On completion day, the remaining funds are transferred and your conveyancer registers the property in your name.