How to repay your mortgage

How to pay off your mortgage

When you take out a mortgage, your repayments are based on two factors:

Your loan amount
The mortgage rates
How many years you borrow the money over

This is because your mortgage is split into two payment types:

Money borrowed
Interest and fees charged for taking out a mortgage

Read on to find out how your monthly repayments are worked out and how the terms of your mortgage affect this.

How are mortgage payments worked out?

To be able to pay off your mortgage, lenders will split the loan into monthly instalments.

This is worked out by adding the total interest of the loan to the amount borrowed, plus any fees or charges, then dividing that by the number of months in your term.

To get an estimate of what your mortgage repayments could be, try our mortgage calculator.

How do mortgage terms work?

A mortgage term is how long it will take to pay your mortgage off. This is usually between 20 and 40 years. If you have a repayment mortgage, the term you choose will affect how much interest you pay overall. Over a shorter term, you'll make higher monthly payments and over a longer term, more interest will be paid.

Paying off an interest-only mortgage

If you have an interest-only mortgage, you’ll only repay the interest each month. This type of mortgage is usually offered on Buy to Let properties.

But because your loan isn’t going down each month, neither will the amount of interest you’ll pay.

When you have reached the end of your loan term – whether it’s 20 or 40 years – you’ll have to repay the money borrowed in full.

Repaying your mortgage: FAQs Repaying your mortgage: FAQs expandable section

When will I make my first mortgage repayment?

Your first repayment will usually be made within a month of your mortgage starting. You’ll receive an official date from your lender.

What happens if I miss a repayment?

If you miss a payment on your mortgage, it will show up on your credit report for six years and it might also impact your ability to secure other means of credit. If you miss lots of payments, your lender may take legal action and your home could be repossessed. Always make sure you can comfortably afford the monthly repayments before taking out a mortgage.

What is an early repayment charge?

An early repayment charge is a fee you’ll pay if you choose to pay all or part of your mortgage early. The charge is usually between 1% and 5% of the outstanding mortgage amount. Not all lenders charge an early repayment charge, so check the terms and conditions of your mortgage.

Can I pay off my mortgage using savings?

Yes, if you have a large amount of money, you can use it to pay off your mortgage early. This could help you save money and lower your debts. However, you may have to pay an early repayment charge for doing so.

What are mortgage arrears?

Mortgage arrears means falling behind with your mortgage repayments.

If you miss a payment, you will be in mortgage arrears. Normally, the lender will write to you within 15 days, but you’ll likely be told the payment hasn’t been made by your bank. The lender has to consider any request you make to change how you pay your mortgage if you cannot meet repayments.

Can I overpay on my mortgage?

In most cases, lenders will allow you to overpay on your mortgage each year, up to a percentage set by the lender – 10% for example. Fees apply when paying more than the agreed amount. To find out more, read our guide to overpayments and underpayments.

If you’re a Lloyds customer, find out more about overpaying on your mortgage.

The content on this page is for reference and does not constitute finance advice.

For impartial financial advice, we recommend government bodies like the MoneyHelper.

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