Your mortgage is probably your biggest monthly cost. Yet most landlords never run the calculation themselves. They take whatever the lender or broker tells them and move on.
The repayment mortgage formula looks intimidating but it is just maths. You take the loan amount, multiply by the monthly interest rate and a compounding factor, then divide by a slightly different compounding factor minus one. The result is your monthly payment.
Here is the practical version. On a £150,000 loan at 5.5% over 25 years, your monthly repayment is roughly £918. Over the full term, you will pay back £275,400. That is £125,400 in interest alone.
Compare that to the same loan on interest-only: £687.50 a month. The difference is £230 a month, or £2,760 a year. That is real cash that could be the difference between a positive and negative cashflow property.
Repayment mortgages cost more each month but you own the property outright at the end. Interest-only costs less each month but you still owe the original loan amount. There is no right answer. But you should run both calculations before you choose.
The formula
M = P × (r × (1 + r)^n) / ((1 + r)^n - 1)
A worked example
£150,000 at 5.5% over 25 years
r = 0.055/12 = 0.004583
n = 300
M = 150,000 × (0.004583 × 1.004583^300) / (1.004583^300 – 1) = £918.13/month
Why this matters
The repayment mortgage formula lets you compare loan terms yourself. A shorter term costs more per month but saves tens of thousands in interest. Run the numbers before you accept a lender’s quote.
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