Interest-Only Mortgage Calculator
Calculate the monthly payment on an interest-only mortgage, with annual interest, how it compares with a repayment loan and what happens when the period ends.
Results · USD
Monthly IO payment
- Annual interest
- $25,000.00
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Educational estimates · not financial advice · free, no signup
How this was calculated
Monthly interest-only payment = principal × annual rate ÷ 12. Annual interest = principal × annual rate. The balance does not fall during the interest-only period.
Want more detail? Full formula notes & FAQs ↓
Detailed guide
What it is, how to use it, how to read the numbers, common mistakes, a worked example, formulas, and FAQs.
What this calculator is
With an interest-only mortgage you pay only the interest each month for an agreed period, so the payment is lower than on a repayment mortgage, but the balance stays the same. At the end of the period you must start repaying principal, refinance, sell or pay off the balance. This calculator shows the monthly and annual interest for a principal and rate. It does not model the later repayment phase, but the comparison matters: a $400,000 loan at 6.25% costs $2,083.33 a month interest-only versus about $2,462.87 on a 30-year repayment loan, and when an interest-only period ends the payment on the remaining term can jump sharply.
When to use / who it helps
- You are comparing an interest-only offer with a standard loan.
- You want the lowest possible monthly payment for a period.
- You are analysing an investment property loan.
- You are checking cash flow before a refinance.
- You want to see the annual interest cost.
How to use
Steps
- Enter the loan principal.
- Enter the annual interest rate.
- Read the monthly payment.
- Read the annual interest.
- Compare with a fully amortizing payment for the same loan.
- Plan for the end of the interest-only period.
How to interpret results
- The payment covers interest only, so the balance stays unchanged.
- The annual interest is twelve payments added.
- A repayment loan has a higher payment but builds equity.
- When the period ends, the payment on the remaining term is higher.
- Rates that adjust may change the payment.
Common mistakes & gotchas
- Assuming the balance falls during the interest-only period.
- Not planning for payment shock.
- Counting on house price growth to pay off the loan.
- Forgetting taxes and insurance.
- Ignoring the possibility of rate changes on adjustable loans.
Worked example
Worked example — $400,000 at 6.25%
- Annual interest: 400,000 × 0.0625 = $25,000.
- Monthly interest-only payment: 25,000 ÷ 12 = $2,083.33.
- A 30-year repayment loan at the same rate costs about $2,462.87 a month.
- If the loan is interest-only for 10 years and the other 20 years repay $400,000, the payment becomes about $2,923.71.
Result: The interest-only payment is $2,083.33 a month, or $25,000 a year.
To load the form's own demo values, tap Try example above the Calculate button.
How to calculate / formula
Monthly interest-only payment = principal × annual rate ÷ 12. Annual interest = principal × annual rate. The balance does not fall during the interest-only period.
Frequently asked questions
What is an interest-only mortgage?
A loan where you pay only interest for an initial period.
Does the balance go down?
Not during the interest-only period.
What happens when the period ends?
You begin repaying principal, refinance, sell or pay off the balance.
Why is the payment lower?
There is no principal in it.
Who uses interest-only loans?
Some investors and borrowers with irregular income, though they carry risk.
Does the calculator include taxes and insurance?
No. It shows principal-and-interest only.