How to work out interest difference over 5 years?

The difference is 0.12%

0.12% of £217,500 is £261. That!!!8217;s the approximate difference in year one. Although the capital reduces over five years you can say a £1,250 cost over 5 years is accurate enough.

As others have said, obviously if you have an interest only mortgage then the principal doesn't amortise, i.e. you owe the same balance throughout the term of the mortgage, so the difference is simply 217,500 x (2.04% - 1.92%) x 5 = 1,305

In reality,we are talking about an amortising mortgage. Let's say (I'm making the numbers up) that your debt is 100,000 and your monthly instalment is 400. The first month, you pay, let's say, 170 of interest and 230 of capital, for a total of 400. On the second month, your capital has gone down to 100,000 - 230; you still pay 400 the 2nd month, but this 400 is now made up of a greater portion of capital and a smaller portion of interest, because the debt on which you pay interest had gone down.

Back to your example and your numbers: If you don't know your way around spreadsheets, you can use one of the many loan or mortgage calculator apps. Over 5 years, at 2.04% you'll end up paying 20,454 of interest vs 19,228 of interest at 1.92%. The difference is 1,226 , which is very close to 1,305. It is close because your mortgage lasts 30 years, so over 5 years it doesn't amortise by a huge amount.

If you recalculate the same number with a 6-year mortgage, instead of a 5-year, the difference shrinks to 799. Why? Because now the whole mortgage lasts 6 years, so most of it will have amortised by the end of year 5.

@getmore4less, I don't understand where you got your numbers; the payments are not 808 and 795 - I guess you must have made some confusion.

@OP, you should be aware that getmore4less likes this approach of making the total payment the same when comparing two mortgages; I don't like it because in most cases it is a theoretical exercise with no practical application: unless you can be bothered to remember to make an extra manual payment of £15, or whatever the difference is, every month, which I know I can't be bothered with, it remains a theoretical point, because many banks don't allow you to set up a regular overpayment every month. This is why I prefer to calculate and compare the interest cost over a given period, because that's the real cost you end up paying in case you don't manually overpay every month (which 99% of borrowers won't). Up to you to decide which approach makes more sense to you.