Monthly interest
Interestₘ = opening balanceₘ × annual rate ÷ 12Interest is added before the monthly payment in each modelled month.
Mortgage Reset · Methodology
How the calculation works
Illustrate how the end of a repayment-mortgage deal could change the monthly payment, balance path, interest and estimated loan-to-value.
Return to calculatorIncluded
- The current balance, rate and cash payment
- A user-selected reset month, new rate and remaining term
- A one-off payment at reset and an optional monthly overpayment
- Rate scenarios 1.5 percentage points above and below the selected rate
- An estimated property value and loan-to-value at reset
Outside this method
- Interest-only, offset and flexible mortgage structures
- Mortgage eligibility, affordability or product recommendations
- Product fees, legal costs and early-repayment charges
- Lender-specific overpayment limits and daily interest methods
- A forecast of mortgage rates or a lender valuation
Calculation
Core formulas
Repayment mortgage payment
Payment = P × r ÷ [1 − (1 + r)⁻ⁿ]The payment is recalculated from the balance at reset, selected monthly rate and entered remaining term.
Reset balance
Balance at reset = projected balance − one-off paymentThe one-off payment is applied when the current deal ends, before the new payment is calculated.
Estimated loan-to-value
LTV = reset balance ÷ estimated property valueProperty value changes at the constant annual rate entered by the user.
Timing convention
When cash flows occur
The current payment and rate are applied monthly until the selected reset month. A one-off payment is then deducted. The new contractual payment is calculated over the selected remaining term, after which any ongoing overpayment is added.
Limitations
What the result cannot establish
- Dividing the annual rate by 12 may not match a lender’s daily calculation exactly.
- A rate change before the entered month, a payment holiday or a contractual change will alter the reset balance.
- Actual mortgage products depend on eligibility, property valuation, loan-to-value bands, fees and lender criteria.
- Property-price change is a deterministic assumption and may be negative or volatile.
- The three rate paths are scenarios, not probabilities or forecasts.
Reference tests
Numerical checks
| Case | Inputs | Expected result |
|---|---|---|
| Standard repayment | £200,000 balance; 5% rate; 25-year term | Contractual payment of approximately £1,169 a month |
| Zero-rate reset | £120,000 balance; 0% rate; 10-year term | Contractual payment of £1,000 a month |
| One-off payment | £150,000 projected reset balance; £10,000 one-off payment | New payment is calculated from £140,000 |
Evidence