Interest-Only Loan Calculator

Calculate your payments during the interest-only period and compare with standard amortized loans.

How Interest-Only Loans Work

An interest-only loan has two distinct phases:

Interest-Only Period: You pay only the interest on the loan. The principal balance remains unchanged.
Amortization Period: You begin paying both principal and interest. Payments increase because you must pay off the full principal in less time.

The interest-only payment is calculated as:

Monthly Payment = Principal × (Annual Rate ÷ 12)

For a $300,000 loan at 6.5% interest with a 10-year interest-only period and 30-year total term:

What is an interest-only loan?: An interest-only loan allows you to pay only the interest for a set period (typically 5-10 years). During this time, your payments are lower because you're not paying down the principal. After the interest-only period ends, you start paying both principal and interest, resulting in higher monthly payments.
Who should consider an interest-only loan?: Interest-only loans may be suitable for borrowers who expect their income to increase significantly, real estate investors who plan to sell before the interest-only period ends, or those who want lower initial payments and can invest the savings elsewhere. However, they carry risks if property values decline or income doesn't increase as expected.
Why do I pay more total interest with an interest-only loan?: Because you're not reducing the principal during the interest-only period, you continue paying interest on the full loan amount for longer. When amortization begins, you have less time to pay off the same principal, resulting in higher payments and more total interest over the life of the loan.