Loan and mortgage repayment calculator

Why early payments barely touch the balance

On a repayment loan the monthly payment is fixed, but what it buys changes every month. Interest is charged on the balance outstanding, so at the start — when the balance is at its largest — most of each payment goes to interest and little to the debt itself. As the balance falls the interest charge falls with it, and the same payment clears more principal each month. This is why the first years of a long mortgage reduce the balance so slowly, why shortening the term raises the payment less than intuition suggests, and why an overpayment made early is worth more than the same overpayment made late: it removes balance that would otherwise have been charged interest for the whole remaining term.

Choosing between the three repayment shapes

The tool models three arrangements, and they answer different questions.

• Term-based repayment fixes the end date and derives the payment — the standard mortgage shape, and the right mode for "what would this loan cost me monthly".
• Fixed-payment mode fixes what you can afford monthly and derives how long the debt lasts — the right mode for cards and overdrafts, where no term is set and the balance lingers as long as you let it.
• Interest-only keeps the balance untouched, so the monthly figure is the cost of standing still; the full balance remains to be repaid at the end.
• Overpayments work in any mode. Whether they shorten the term or cut the payment is a choice most lenders let you make — shortening the term saves more interest, cutting the payment gives more slack.