Interest vs. Principal & Interest Mortgage Calculator
| Metric | Interest-Only Loan | Standard P&I Loan | Difference |
|---|---|---|---|
| Initial Monthly Payment | $0.00 | $0.00 | $0.00 |
| Total Interest Paid | $0.00 | $0.00 | $0.00 |
| Total Cost | $0.00 | $0.00 | $0.00 |
| Loan Term | 0 years | 0 years | 0 years |
| Equity After 5 Years | $0.00 | $0.00 | $0.00 |
Understanding Loan Types
Interest-Only Mortgages:
- Pay only interest for an initial period (typically 5-10 years)
- Lower initial payments but no equity buildup during interest-only period
- After interest-only period, payments increase significantly to cover principal
- Total interest paid is higher than standard loans
Principal & Interest (P&I) Mortgages:
- Pay both principal and interest from the start
- Higher initial payments than interest-only loans
- Build equity immediately with each payment
- Total interest paid is lower than interest-only loans
When to Consider Interest-Only:
- Expecting significant income growth in the future
- Planning to sell before interest-only period ends
- Need maximum cash flow flexibility now
- Investing the payment difference elsewhere
Risks of Interest-Only:
- Payment shock when principal payments begin
- No equity buildup during interest-only period
- Higher total interest costs
- Property value may not appreciate as expected
| Date | Loan Amount | Interest Rate | Term | IO Period | Currency | Actions |
|---|
Interest-Only vs P&I Mortgage Calculator
Compare two popular mortgage options side-by-side to make the best decision for your home financing
Choosing between an Interest-Only mortgage and a Principal & Interest (P&I) mortgage can feel overwhelming. It's like choosing between two different roads - one starts easy but gets steep later, while the other is steady all the way. Our calculator helps you see exactly what each path looks like for your situation.
This guide breaks down everything in simple terms, with real examples and clear explanations, so you can make an informed decision about your mortgage.
What's the Difference? Simple Explanation
Interest-Only Mortgage
You pay only the interest on your loan for an initial period (usually 5-10 years). Your payments are lower at first, but you're not paying down the loan amount itself.
Principal & Interest Mortgage
You pay both interest AND principal from day one. Your payments are higher at the start, but you're building equity (ownership) in your home with every payment.
Simple Example:
Loan: $500,000 at 5.5% for 30 years
- Interest-Only (5 years): Pay $2,292/month for 5 years, then $3,088/month for 25 years
- P&I (30 years): Pay $2,839/month for 30 years (same every month)
The Interest-Only loan saves you $547/month at first, but costs you $249/month more later.
Try Our Comparison Calculator
Enter your specific loan details to see personalized comparisons. Our calculator handles all the complex math so you can focus on understanding the results.
Understanding the Calculator Fields
1. Loan Amount
What it is: The total amount you're borrowing.
Example: If your home costs $600,000 and you have a $100,000 deposit, your loan amount is $500,000.
Tip: Be Realistic
Use the actual amount you plan to borrow, not the maximum you could borrow. Lenders may offer more than you can comfortably afford.
2. Interest Rate (%)
What it is: The annual interest rate on your loan, expressed as a percentage.
Example: A 5.5% rate means you'll pay 5.5% of your loan balance in interest each year.
Monthly Interest Formula
Example: $500,000 × 5.5% ÷ 12 = $2,291.67 per month interest
3. Loan Term (Years)
What it is: How long you have to repay the entire loan.
Common terms: 15, 20, or 30 years (30 is most common for home loans).
Important: This is the TOTAL loan period, including any interest-only period.
4. Interest-Only Period (Years)
What it is: How many years you'll pay interest only before starting to repay principal.
Typical periods: 5, 7, or 10 years.
Example: With a 5-year interest-only period on a 30-year loan, you pay interest only for 5 years, then principal & interest for 25 years.
The Math Behind Your Payments
Interest-Only Payment Calculation
Example: $500,000 × (5.5% ÷ 12) = $2,291.67/month
P&I Payment Calculation (More Complex)
This formula is why we created the calculator - it does this complex math for you instantly!
Don't Worry About the Complex Math
Our calculator handles all these formulas automatically. You just enter your numbers and get clear results!
What Your Results Mean
Initial Monthly Payment
This shows your payment during the interest-only period (for IO loans) or your constant payment (for P&I loans).
- Interest-Only: Lower payments at first
- P&I: Higher but consistent payments
Payment After Interest-Only Period
For interest-only loans, this shows what happens after the initial period ends.
Warning: This is often a "payment shock" - payments jump significantly when principal repayment begins.
Total Interest Paid
The total amount of interest you'll pay over the life of the loan.
| Loan Type | Total Interest (on $500k at 5.5%) | Why? |
|---|---|---|
| Interest-Only | $715,000 | You pay interest on the full amount longer |
| P&I | $522,000 | Balance decreases, so interest decreases |
Equity After 5 Years
How much of the home you actually own after 5 years.
- Interest-Only: $0 equity (only your deposit)
- P&I: ~$35,000 equity (plus any home value increase)
Key Features of Our Calculator
Interactive Charts
See how payments change over time with visual graphs that make comparisons easy to understand.
50+ Currencies
Calculate in your local currency - we support everything from US Dollars to Euro and Japanese Yen.
Save & Compare
Save different scenarios and compare them side-by-side to find your best option.
Export Results
Download your calculations as PDF, HTML, or text files for loan applications or financial planning.
When to Consider Each Option
Interest-Only Might Be Right If:
- You expect your income to increase significantly in the near future
- You plan to sell the property before the interest-only period ends
- You need maximum cash flow flexibility now (business owners, investors)
- You can invest the saved money at a higher return than your mortgage rate
P&I Might Be Right If:
- You want stable, predictable payments for budgeting
- You're building long-term wealth and home equity
- You prefer the security of knowing your debt is decreasing
- You're risk-averse and don't want "payment shock" later
The "Payment Shock" Warning
Interest-only loans create a hidden risk: when the interest-only period ends, your payments can jump 30-50%. Always make sure you can afford the higher payment later!
Frequently Asked Questions (15 Common Questions)
Making Your Decision: A Simple Checklist
Ask Yourself These Questions:
- Income stability: Is your income likely to increase enough to handle higher payments later?
- Time horizon: How long do you plan to own this property?
- Risk tolerance: Are you comfortable with potential payment increases?
- Investment skills: Can you invest the savings to earn more than your mortgage rate?
- Emotional comfort: Does building equity from day one give you peace of mind?
Final Tip: Run Multiple Scenarios
Use our calculator's history feature to save different scenarios. Try different interest rates, loan amounts, and interest-only periods to see how each affects your payments and total costs.
Beyond the Numbers
Remember, a mortgage isn't just about monthly payments. It's about:
- Building wealth: Every principal payment increases your net worth
- Financial flexibility: Lower payments now mean more cash for other goals
- Peace of mind: Predictable payments help with budgeting
- Future plans: Your mortgage should fit your 5-10 year life plan
Our calculator gives you the numbers, but you bring the context of your life goals and financial situation. Use the results as a starting point for deeper conversations with your financial advisor or mortgage broker.