Interest-Only Loan Calculator
When the interest-only period ends, the payment rises by $569.96 a month because the full balance is repaid over the remaining 25 years.
How the interest-only loan calculation works
During the interest-only years you pay just the interest
Payment = loan × yearly rate ÷ 12. $500,000 at 7.5% is $3,125 a month, and the balance stays at $500,000.
Then the full balance amortizes over the years left
With 5 interest-only years on a 30-year loan, the $500,000 is repaid over the last 25 years at $3,694.96 a month, $569.96 more than before.
Compare with a regular loan
The same loan amortized over all 30 years costs $3,496.07 a month and $758,586.12 in interest. The interest-only version costs $795,986.77, or $37,400.65 more.
If interest-only runs the whole term, the loan is due at the end
Set the interest-only period equal to the term to model a loan that is paid off in one lump sum.
Worked example. A $500,000 loan at 7.5% with 5 interest-only years on a 30-year term costs $3,125 a month at first, then $3,694.96 for the remaining 25 years. Total interest is $795,986.77, which is $37,400.65 more than a regular 30-year loan at $3,496.07 a month.
Interest-Only Loan FAQ
What is an interest-only loan?
A loan where, for a set period, each payment covers only the interest. The balance does not go down during that time. When the period ends, you start repaying principal as well, so the payment rises, or the full balance is due if the loan has no amortizing period.
How do you calculate an interest-only payment?
Multiply the loan balance by the yearly rate and divide by 12. $500,000 at 7.5% is $500,000 × 0.075 ÷ 12 = $3,125 a month.
What happens when the interest-only period ends?
The payment rises because the full balance must now be repaid over fewer years. In the default example it goes from $3,125 to $3,694.96 a month.
Is an interest-only loan more expensive?
Yes, over the life of the loan. You owe the full balance for longer, so you pay more interest in total, even though early payments are lower.
Who uses interest-only loans?
Commercial real estate investors, builders and businesses expecting income to grow, because a lower early payment frees up cash. They suit borrowers with a clear plan to refinance, sell or repay.
Can I pay principal during the interest-only period?
Usually yes. Extra payments lower the balance, which lowers the interest charged and the payment once amortization starts. Check for a prepayment penalty.
Does this work for an interest-only mortgage?
Yes, for a fixed rate. A $300,000 mortgage at 6.5% with 10 interest-only years on a 30-year term costs $1,625 a month at first, then $2,236.72 for the last 20 years. That is $49,179.19 more interest than a regular 30-year loan at $1,896.20 a month. Under the CFPB's Regulation Z, a loan that lets you defer principal generally cannot count as a Qualified Mortgage.
Can I use it for an interest-only HELOC?
As an estimate, yes. Enter the amount you have drawn, the current rate, the draw period as the interest-only years and the draw plus repayment years as the full term. Most HELOC rates are variable and the balance changes as you draw or repay, so real payments will differ. Check your agreement for the actual draw and repayment periods.