Interest-Only Loan Calculator
Calculate your interest-only payments and understand the financial implications
Key Insights
Interest-Only Loans allow you to pay just the interest for a set period before starting to pay down the principal. This results in lower initial payments but higher payments later when principal payments begin.
Example: On a $250,000 loan at 5.5% interest, your interest-only payment would be $1,145.83/month for the first 5 years, then increase to $1,703.37/month when principal payments begin.
1. Introduction
An Interest-Only Loan Payment Calculator helps borrowers understand the payment structure of interest-only loans, where you pay only the interest for a set period before repaying the principal. Common for:
Mortgages (5-10 year interest-only periods)
Business loans
Investment property financing
2. How Interest-Only Loans Work
| Phase | Interest-Only Period | Amortizing Period |
|---|---|---|
| Duration | 5-10 years | Remaining loan term |
| Payments | Interest only (lower payments) | Principal + interest (higher) |
| Principal | Unchanged | Gradually decreases |
3. Calculator Inputs
Loan Amount (e.g., $500,000)
Interest Rate (e.g., 6% APR)
Interest-Only Period (e.g., 7 years)
Full Loan Term (e.g., 30 years)
4. Calculation Formulas
A. Interest-Only Payment
Example:
$500,000 loan at 6% for 7 years interest-only:
B. Post-Interest-Only Payment
After the interest-only period, payments recalculate as a standard amortizing loan over the remaining term (e.g., 23 years for a 30-year loan).
5. Example: $500K Loan at 6%
| Period | Payment Type | Monthly Payment | Principal Balance |
|---|---|---|---|
| Years 1-7 | Interest-Only | $2,500 | $500,000 (unchanged) |
| Years 8-30 | Principal + Interest | $3,455 | Gradually decreases |
Key Stats:
Total Interest Paid: ~$605,000
Payment Jump: +38% after interest-only period
6. Pros & Cons
Advantages
✅ Lower initial payments (cash flow flexibility)
✅ Good for short-term ownership (flipping homes)
✅ Tax benefits (mortgage interest deduction)
Risks
⚠️ No equity buildup during interest-only period
⚠️ Payment shock when amortization begins
⚠️ Risk of negative amortization if property value declines
7. Who Should Use Interest-Only Loans?
Real estate investors (plan to sell before amortization)
High-income, variable-earners (doctors, commission-based roles)
Bridge financing (between property sales)
Not recommended for long-term homeowners or those unable to handle payment increases.
8. Advanced Scenarios
Balloon Payments: Some loans require lump-sum principal repayment after interest-only period.
ARMs: Interest-only + adjustable rates = higher risk.
Refinancing Risk: Rates may rise when converting to amortizing payments.
9. Calculator Outputs
A good calculator shows:
Interest-Only Payment Amount
Amortizing Payment After IO Period
Total Interest Paid
Comparison to Standard Loan
10. Try It Yourself
Need a customized calculation? Provide:
Loan amount
Interest rate
IO period length
Total term
I’ll generate a detailed amortization schedule and payment timeline!
*(Example: A $300K loan at 5% with 5-year IO saves $400/month initially but costs $42K more interest than a standard 30-year loan.)*