Interest-Only Mortgage Calculator
Calculate your monthly payment during an interest-only mortgage period and see how it compares to a fully amortizing payment. Useful for borrowers evaluating cash-flow flexibility in the early years of a loan.
About this calculator
During an interest-only period, your monthly payment covers only the interest accrued on the outstanding balance — no principal is repaid. The formula is simply: Monthly Payment = P × (r / 12), where P is the loan balance and r is the annual interest rate expressed as a decimal. For example, at 6% annually, r/12 = 0.005. Once the interest-only period ends, the loan converts to a fully amortizing schedule: the same principal must now be paid off over the remaining term, which can cause a significant payment jump. This calculator lets you compare the interest-only payment against the equivalent amortizing payment so you understand the cost of deferring principal repayment. It also helps you quantify the total extra interest paid by not reducing the balance during the initial period.
How to use
Assume a $350,000 loan at 6.5% interest with a 10-year interest-only period. Monthly interest-only payment: $350,000 × (0.065 / 12) = $350,000 × 0.005417 ≈ $1,896. By contrast, a fully amortizing 30-year payment at the same rate would be approximately $2,212 per month. The monthly savings during the interest-only period is $2,212 − $1,896 = $316. However, after 10 years, the full $350,000 balance remains, and the amortizing payment over the remaining 20 years rises to about $2,607 — a $711 jump from the interest-only payment.
Frequently asked questions
What happens to my mortgage payment when the interest-only period ends?
When the interest-only period expires, your lender recalculates your payment to fully amortize the remaining balance over the remaining loan term. Because you haven't reduced the principal at all, and you now have fewer years to pay it off, your monthly payment increases — sometimes substantially. For example, a 10-year interest-only period on a 30-year loan leaves 20 years for full repayment, compressing the amortization schedule and raising the payment considerably. Borrowers should plan for this 'payment shock' well in advance.
How much total interest do you pay extra with an interest-only mortgage?
Because no principal is paid during the interest-only period, the loan balance stays at its original level and continues accruing full interest charges month after month. Over a 10-year interest-only period on a $350,000 loan at 6.5%, you pay roughly $227,500 in interest before a single dollar of principal is retired. A standard amortizing loan would have reduced the balance to about $290,000 by year 10, saving tens of thousands in total interest. The trade-off is intentional cash-flow flexibility, but the long-term cost is real.
Who should consider an interest-only mortgage loan?
Interest-only mortgages suit borrowers who expect their income to rise significantly before the amortization period begins, such as medical residents or commission-based professionals. They are also used by real estate investors who want to minimize carrying costs while a property appreciates or is being renovated. Short-term homeowners who plan to sell before the IO period ends can also benefit, since they capture lower payments without facing the payment jump. They are generally unsuitable for buyers who need to build equity steadily or who have limited financial cushion.