Mortgage Mechanics

Fixed-Rate vs. Variable-Rate Mortgages

A fixed-rate mortgage locks the interest rate for an agreed introductory period — commonly two, five or ten years in the UK — regardless of what happens to the Bank of England base rate or wider market rates during that time. This gives payment certainty but means you won't benefit if rates fall, and you may face an Early Repayment Charge if you want to exit before the fixed period ends.

A variable-rate mortgage moves with an external reference, most commonly a margin above the Bank of England base rate (a "tracker") or the lender's own Standard Variable Rate (SVR). Payments can rise or fall with market conditions, offering more flexibility to exit but less payment certainty.

Repayment vs. Interest-Only Structures

On a repayment (capital & interest) mortgage, each monthly payment covers both the interest due and a portion of the capital, so the balance amortises to zero by the end of the agreed term — this is the default and by far the most common structure for owner-occupied residential mortgages.

On an interest-only mortgage, the monthly payment covers only the interest charged on the balance; the capital itself never reduces unless the borrower makes voluntary overpayments. This produces a materially lower monthly payment, but requires a credible separate repayment strategy (savings, investments, or planned sale of the property) to clear the full loan balance at the end of the term. Lenders apply stricter affordability and repayment-vehicle checks to interest-only lending as a result.

What APRC Tells You That the Headline Rate Doesn't

The Annual Percentage Rate of Charge (APRC) is a standardised figure UK lenders must disclose, representing the total cost of borrowing — including product fees, valuation fees and other mandatory charges — expressed as an annualised percentage, assumed over the full mortgage term at the lender's reversion rate after any initial deal period ends. Because a mortgage with a slightly higher headline rate but no product fee can sometimes have a lower APRC than one with a rock-bottom headline rate and a hefty arrangement fee, APRC is the more reliable figure for comparing two products on a genuinely equal basis.

Daily Compounding and Why Payment Timing Matters

Most UK mortgage lenders calculate interest daily on the outstanding balance and apply it to the account monthly. This means the exact day within the month that you make a payment or overpayment has a small but real effect on the total interest charged — an overpayment made on the 1st of the month reduces the balance (and therefore the interest accruing) for the rest of that month, whereas the same overpayment made on the 28th only has a few days to take effect before the next interest calculation.

Standard Variable Rate (SVR) and Reversion

When an initial fixed or tracker deal period ends, borrowers who do not remortgage onto a new product automatically "revert" to their lender's Standard Variable Rate — typically noticeably higher than available fixed or tracker deals. This is one of the most common (and avoidable) sources of mortgage overpayment in the UK market; setting a reminder to shop for a new deal three to six months before your current deal ends is a simple way to avoid reverting to SVR unintentionally.

Model These Structures Yourself

Toggle between repayment and interest-only structures, and test different rates and terms, using the interactive amortisation simulator on the homepage to see the exact monthly payment, total interest and payoff timeline each structure produces for your own scenario.