Interest-Only Mortgage Calculator
Calculate your monthly payment during the interest-only phase of a mortgage and see how payments jump when full amortization begins. Ideal for borrowers evaluating IO loans or planning cash flow around the reset.
About this calculator
An interest-only (IO) mortgage has two distinct phases. During the IO period you pay only accrued interest each month: Payment_IO = loanAmount × (interestRate / 100 / 12). Because no principal is repaid, the balance stays unchanged. Once the IO period ends, the remaining principal must be fully amortized over the leftover term using the standard formula: Payment_amort = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1], where P is the original loan amount, r = rateAfterIO / 100 / 12, and n = (totalLoanTerm − interestOnlyPeriod) × 12. Because you are paying off the same balance in fewer months, the amortizing payment is always higher than the IO payment — sometimes dramatically so. This calculator shows both figures so you can plan for the payment increase.
How to use
Assume a $500,000 loan at 6.5% interest, with a 10-year IO period on a 30-year term, and a post-IO rate of 7.0%. During the IO phase: Payment = $500,000 × (0.065/12) = $500,000 × 0.005417 ≈ $2,708/month. After year 10, the remaining term is 20 years (240 months) and r = 0.07/12 ≈ 0.005833. Payment_amort = $500,000 × [0.005833 × (1.005833)²⁴⁰] / [(1.005833)²⁴⁰ − 1] ≈ $3,876/month. The reset causes a payment jump of roughly $1,168/month — a 43% increase you must be financially prepared for.
Frequently asked questions
Why does my mortgage payment increase so much after the interest-only period ends?
During the IO phase you are only covering interest, so the full principal balance remains intact. When the IO period ends, the lender requires you to repay that entire balance over the shortened remaining term. Compressing 30 years of principal repayment into 20 (or fewer) years substantially raises the required monthly payment. The effect is amplified if the interest rate also adjusts upward at the reset. Running this calculator before committing to an IO loan lets you confirm you can afford the higher future payment.
What are the risks of an interest-only mortgage compared to a traditional amortizing loan?
The primary risk is payment shock when the amortization period begins, which can strain budgets if income has not grown proportionally. A second risk is that you build no equity through payments during the IO phase, leaving you vulnerable if home values decline. If the property loses value and you need to sell or refinance, you could owe more than the home is worth. IO loans were widely linked to the 2008 housing crisis for exactly these reasons. They can make sense for investors with irregular income or for buyers who expect rapid property appreciation, but they require careful cash-flow planning.
How do I calculate the total interest cost of an interest-only mortgage versus a conventional loan?
For the IO loan, total interest = (IO monthly payment × IO months) + (amortizing payment × amortizing months) − original loan amount. For a conventional loan, total interest = (monthly payment × 360) − loan amount. The IO loan almost always costs more in total interest because the principal is repaid over a shorter period at a higher effective rate, and the balance never decreases during the IO phase. This calculator focuses on payment amounts; to compare total interest you can multiply each payment by its corresponding number of months and subtract the principal. The difference is often tens of thousands of dollars over the life of the loan.