Interest-Only Loan Calculator
Calculate interest-only loan payments and comparisons
Interest-Only Payment
$1,625
Years 1-10
Amortizing Payment
$2,237
Years 11-30
Payment Increase After Interest-Only Period
+$612/mo
Total Interest
$431,813
Extra vs Full Amortizing
+$49,179
Visualization
Loan Balance Over Time
- Remaining Balance
- Principal Paid
Original Loan
$200,000
Total Interest
$303,692
Total Paid
$431,640
Results are estimates and may vary based on lender terms and fees.
Results are estimates for informational purposes only and do not constitute financial advice. Actual results may vary based on lender terms, fees, and other factors.
Interest-Only Loan Calculator Formula
The interest-only payment equals principal times the monthly interest rate. During the interest-only period, you pay only interest with no principal reduction. After this period ends, payments increase significantly as you begin amortizing the loan over the remaining term.
How the Interest-Only Loan Calculator Works
- 1Enter your loan amount
- 2Input the interest rate
- 3Specify the interest-only period length
- 4Set the total loan term
- 5View payments during IO period, after IO period, and compare to fully amortizing
Interest-Only Loan Calculator Key Terms
- Interest-Only Period
- The initial phase of the loan where payments cover only interest, typically 5-10 years, with no principal reduction.
- Payment Shock
- The significant payment increase when the interest-only period ends and the loan begins amortizing.
- Fully Amortizing
- A standard loan where payments cover both principal and interest from the start, gradually paying down the balance.
- Negative Equity Risk
- The risk that you owe more than the property is worth if values decline during the interest-only period.
Interest-Only Loan Calculator Tips
- •Prepare for the payment increase—it can be 30-50% higher after the IO period
- •Interest-only loans cost significantly more in total interest
- •Make voluntary principal payments during IO period if possible
- •Consider refinancing before the IO period ends if rates are favorable
- •These loans suit specific situations—not for typical homebuyers
When to Use This Interest-Only Loan Calculator
- ✓Understanding how interest-only mortgages work
- ✓Comparing IO versus fully amortizing loan costs
- ✓Planning for the payment reset after the IO period
- ✓Evaluating whether an IO loan fits your financial situation
- ✓Calculating total interest cost differences
Interest-Only Loan Calculator Examples
IO Mortgage
Interest-only payment is $2,167. After 10 years, fully amortizing payment jumps to $3,160 for remaining 20 years.
Investment Property
IO period keeps payments at $1,458. Payment increases to $1,996 when amortization begins.
Short-Term Hold
For planned short-term ownership, IO saves $680/month vs amortizing during the hold period.
Understanding Interest-Only Loan in Depth
Interest-only mortgages offer lower initial payments but require careful planning. Understanding how these loans work—and the eventual payment increase—is essential before choosing this financing structure.
How Interest-Only Loans Work
During the interest-only period (typically 5-10 years), you pay only the interest accruing each month. Your loan balance remains unchanged. After this period, the loan converts to fully amortizing over the remaining term, creating a payment increase since you're now repaying principal too—in a shorter timeframe.
The True Cost of Interest-Only
Because you're not paying down principal during the IO period, you pay interest on the full original balance longer. A $400,000 IO loan at 6.5% with a 10-year IO period costs about $75,000 more in total interest than a standard 30-year amortizing loan at the same rate.
Who Benefits from IO Loans?
Interest-only loans can make sense for: irregular income earners who invest the payment difference, borrowers expecting significant income increases, short-term homeowners in appreciating markets, or real estate investors prioritizing cash flow. They're rarely appropriate for typical homebuyers.
Preparing for Payment Reset
The payment jump can be jarring. A $400,000 loan at 6.5% with 10-year IO has IO payments of $2,167, jumping to $2,844 when amortization begins—a 31% increase. Plan for this reset, consider refinancing options, and ideally make voluntary principal payments during the IO period.
Interest-Only Loan Calculator FAQs
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Marcus Chen
Financial Analysis SpecialistMarcus has over 12 years of experience in quantitative finance and personal financial planning. He specializes in loan analysis, investment modeling, and consumer debt strategies. His methodologies incorporate industry-standard financial mathematics used by major lending institutions.
Editorial Standards: All calculations use industry-standard financial formulas. Content is reviewed for mathematical accuracy and updated to reflect current market conditions. This tool provides estimates for informational purposes and does not constitute financial advice.