Halfway through the term is nowhere near halfway through the debt
The monthly payment is the easy part and every calculator gives it. What almost none of them show is where that payment goes, and the answer surprises nearly everybody.
Interest is front loaded. On a typical £200,000 repayment mortgage over 25 years at 5%, around two thirds of your very first payment is interest and only the remainder touches the debt. That proportion falls every single month and is close to nothing by the end.
The consequence is that after twelve and a half years of paying, you will still owe well over 60% of what you borrowed. People check their balance at that point and assume something has gone wrong. Nothing has. It is simply how amortisation works, and knowing that before it happens beats finding out after.
It also explains why overpaying early is worth several times overpaying late. Every pound taken off the capital removes all the future interest that pound would have carried, and a pound removed in year two has twenty-three years of interest attached to it. The same pound in year twenty has two.
Stretching the term is expensive in a way the monthly figure hides
Extending from 25 years to 30 is the standard answer to an unaffordable payment, and on the monthly number it looks like an obvious win. It knocks a fairly modest amount off what leaves your account each month.
It also adds tens of thousands to the total interest, because the five years you have added are the ones where the balance is at its smallest and the interest has the longest to compound. You pay for longer, on more, at the least efficient end of the loan.
That is not an argument against it. If the longer term is what makes the house affordable, the longer term is the right decision. It is an argument against making it on the monthly figure alone, which is the only figure most calculators put in front of you.
Overpaying, and the limit nobody mentions
A regular overpayment is the most effective thing most borrowers can do, and the arithmetic is unusually satisfying: a modest monthly amount can take years off a term and save five figures.
The constraint is contractual rather than mathematical. Most lenders permit overpayments of 10% of the outstanding balance a year without penalty and levy an early repayment charge above that, particularly during a fixed rate period. Check your own limit before setting up a standing order, because an ERC can easily wipe out a year of the interest you were trying to save.
The same rate is not the same loan everywhere
This one matters if you are comparing a mortgage across borders, and it is invisible on every single-market calculator.
Canadian fixed rate mortgages are conventionally quoted on a half-yearly compounding basis. That follows from section 6 of the Interest Act, which requires a mortgage on real property to state "the rate of interest chargeable on that money, calculated yearly or half-yearly, not in advance". The UK, the US and Australia simply divide the annual rate by twelve.
Converting a half-yearly rate properly means taking its sixth root rather than dividing by twelve, which makes a Canadian mortgage at 5% very slightly cheaper each month than a British one at the identical number. Small monthly, real across a full term, and the reason the market selector on this tool is not cosmetic.
Worth being precise about what section 6 is, since plenty of sources overstate it: it is a rule about how the rate must be stated. It does not itself forbid monthly compounding. The convention follows from it rather than being commanded by it.
What this figure is not
Capital and interest, and nothing else. It does not include buildings insurance, any arrangement or product fee added to the loan, ground rent or service charge on a leasehold, or life cover. Those are what turn a mortgage payment into a housing cost, and leaving them out of a budget is a far more common mistake than getting the mortgage arithmetic wrong.
Common questions
Why do I still owe so much halfway through my mortgage?
Because interest is front loaded, and that catches almost everyone by surprise. The early payments are mostly interest and the late ones mostly capital, so twelve and a half years into a twenty-five year term you will typically still owe over 60% of what you borrowed. Nothing has gone wrong. It is how amortisation works, and it is the reason overpaying early is worth several times overpaying late.
Should I take a longer mortgage term?
It is a cashflow decision with a very large price attached, and a calculator that shows only the monthly figure makes it look like a straight win. Going from 25 years to 30 on a typical loan knocks a fairly modest amount off the payment and adds tens of thousands to the total interest, because the extra five years are the ones where the balance is smallest and the interest has longest to run. Take the longer term if you need the monthly room, but take it knowing the number.
How much does overpaying actually save?
More than most people expect, and far more early than late. A regular monthly overpayment attacks the capital directly, and every pound off the capital removes all the future interest that pound would have carried. The catch is contractual rather than mathematical: most lenders allow you to overpay 10% of the outstanding balance in a year without penalty and charge an early repayment charge above that, so check your own limit before setting up a standing order.
Is a 5% mortgage the same in Canada as in the UK?
No, and this catches people comparing across borders. Canadian fixed rate mortgages are conventionally quoted on a half-yearly compounding basis, which follows from section 6 of the Interest Act requiring the rate to be stated "calculated yearly or half-yearly, not in advance". The UK, US and Australia simply divide the annual rate by twelve. The same quoted 5% therefore produces a slightly lower monthly payment in Canada. It is small per month and real over a full term.
What is not included in this figure?
The capital and interest only. It excludes buildings insurance, any product or arrangement fee added to the loan, ground rent and service charge on a leasehold, and life cover. Those are what turn a mortgage payment into a housing cost, and they are frequently the difference between a budget that works and one that does not.
Does the payment change if interest rates change?
On a fixed rate, not until the fix ends. On a tracker or variable rate, yes, and the effect is larger early in the term when the balance is high. This tool assumes the rate you enter runs for the whole term, which is the right way to compare offers but not a forecast. If you are on a two or five year fix, the useful exercise is running it again at a higher rate to see what the payment becomes if you remortgage into a worse market.
Repayment or interest only?
This tool models a repayment mortgage, where each payment covers the interest and chips at the capital so the debt is gone at the end of the term. On interest only, the payment covers the interest alone and the full amount borrowed is still outstanding on the final day, needing a separate repayment plan. Interest only is far cheaper monthly and leaves you owing every penny, which is why lenders now ask hard questions about how it will be repaid.