Most people don't realise how much of their early mortgage payments go to interest rather than reducing the debt. An amortisation table makes this brutally clear — and reveals powerful strategies.
On a 25-year repayment mortgage, your first monthly payment might be 70–80% interest and just 20–30% principal. By year 20, that ratio has flipped. Understanding amortisation changes how you think about overpaying your mortgage.
Amortisation is the process of gradually paying off a debt through regular payments over time. Each payment covers the interest that has accrued that month, with any remainder reducing the loan balance (principal). As the balance falls, the interest portion shrinks and the principal portion grows — even with constant monthly payments.
Month 2 interest is calculated on £199,639 — slightly less than month 1, so slightly more goes to principal. This compounds over time.
(Based on £200,000 at 4.5% over 25 years, monthly payment ~£1,111. Total interest paid: ~£133,300)
On the example above, £200,000 borrowed at 4.5% over 25 years costs approximately £333,300 total — a £133,300 premium for borrowing the money. That's a 67% surcharge on the original loan amount. This number shocks people who've only ever thought about monthly affordability.
Every pound of overpayment in the early years:
£200/month in extra payments saves over £31,000 in interest and 5 years of mortgage payments. The earlier you start overpaying, the bigger the effect.
On an interest-only mortgage, your monthly payment covers only the interest. The balance never reduces. After 25 years you still owe £200,000 and must repay it in a lump sum (usually by selling). Interest-only mortgages have lower monthly payments but the total cost is dramatically higher because you're paying interest on the full amount for the entire term.
Most mortgage lenders now require evidence of a credible repayment vehicle before granting interest-only terms, but they still exist. Understanding amortisation helps clarify why repayment mortgages are almost always the better long-term choice.