Lesson 8
The Mechanics of a Mortgage
See how each mortgage payment splits between interest and the loan, what an overpayment really saves, and what happens when a fixed rate ends.
Builds on
The biggest interest machine you’ll own
A repayment mortgage is the same machine as a credit card, only bigger and slower. Take £250,000 over 25 years at 5%, with interest worked out monthly and no fees. The level monthly payment is £1,461.48, and over the 25 years you pay about £438,443 in all.
Every payment covers that month’s interest first. Whatever is left reduces what you still owe, the principal. Paying a loan down like this is called amortisation. This is a model, not a quote: real rates change when a deal ends, and lenders work interest out in their own ways.