Interest-Only Loan Calculator

How the interest-only payment is worked out

During the interest-only period the payment is the month's interest: balance × rate ÷ 12. The balance does not go down unless you pay extra principal. When the period ends, the payment becomes a level principal and interest payment that repays the balance over the years left: payment = balance × r ÷ (1 − (1 + r)^−n), with r = rate ÷ 12 and n the months left.

Worked example: $400,000 at 7% for 30 years, the first 5 interest-only. The interest-only payment is $400,000 × 7% ÷ 12 = $2,333.33. From year 6 the $400,000 is repaid over 25 years (n = 300): $2,827.12 a month. Over the whole loan you pay $140,000 of interest in the first 5 years and $448,135.04 after, $588,135.04 in all.

This is the structure the federal agencies' consumer guide on interest-only mortgages describes: "a 30-year mortgage loan with a 5-year I-O payment period, you can pay only interest for 5 years and then both principal and interest over the next 25 years."

The payment after the interest-only period

The payment rises when the interest-only period ends even if the rate stays the same, because principal now has to be repaid, and over fewer years than the full term. In the example it goes from $2,333.33 to $2,827.12, up $493.78 or 21%. A longer interest-only period on the same term makes the jump bigger: 10 years interest-only on the same loan leaves 20 years to repay it, $3,101.20 a month.

Most interest-only mortgages have adjustable rates, the same guide notes, so the rate can change at the same time. This calculator holds the rate fixed; to test a higher rate after the interest-only period, run it again at that rate and read the payment after the period.

Interest-only vs a standard loan

The calculator puts the same loan, rate and term next to a standard loan that amortizes from the first payment. The standard loan has a higher payment at the start ($2,661.21 in the example) but a lower one later, and costs less interest over the term ($558,035.59 against $588,135.04).

The difference is what the lower early payments cost. Whether that is worth it depends on what the money that did not go to principal does in the meantime, and on being able to afford the higher payment when it comes. The CFPB's tip: do not assume you will be able to sell or refinance if the payment increases.

Extra principal during the interest-only period

Each extra dollar of principal lowers the balance, so the next month's interest-only payment is a little smaller and less is left to repay when the period ends. The calculator assumes the payment after the period is worked out on the balance at that point, which is how the schedule repays the loan by the end of the term.

Some notes keep the payment fixed and shorten the loan instead, and some charge a prepayment penalty. Ask the lender how extra payments are applied before you count on the savings shown.

Rate ÷ 12 vs actual/360

The schedule uses the monthly convention: each month's interest is the balance × rate ÷ 12, so every month costs the same and a year costs exactly the stated rate. Some notes, commercial ones in particular, charge interest on an actual/360 basis instead: rate ÷ 360 a day, for the actual days in the month. A 31-day month then costs more than a 30-day one, and a 365-day year costs rate × 365 ÷ 360.

On $400,000 at 7%, actual/360 is $77.78 a day: $2,333.33 for a 30-day month, $2,411.11 for a 31-day month, and $28,388.89 for a 365-day year against $28,000 on rate ÷ 12, an effective 7.10%. The switch shows these figures for your loan; the year-by-year schedule stays on rate ÷ 12. The note's interest clause says which method applies.

What this calculator does not do

It assumes a fixed rate for the whole term, whole years for the interest-only period and the term, and payments on schedule. It leaves out taxes, insurance, HOA dues, mortgage insurance, closing costs, points and prepayment penalties, and it does not model a rate that adjusts or a loan that recasts on its own schedule. Use it to see the shape of the loan and to ask the lender better questions, not as a loan quote.

Sources, read on 2026-10-26:

• CFPB, What is an "interest-only" loan?
• Federal Reserve Board with the OCC, FDIC, Freddie Mac and others, Interest-Only Mortgage Payments and Payment-Option ARMs (October 2006), pp. 1-2
• Reinhart Boerner Van Deuren, Methods for Calculating Interest on Loans: 360/365 vs. 365/365 (2009)

Financing a rental or a commercial property? The DSCR calculator checks whether the rent covers the interest-only or amortizing payment, the cap rate calculator works out NOI ÷ price, and the commercial mortgage calculator shows the balloon due when the amortization is longer than the term.

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