Interest-Only Mortgage Calculator

The Interest-Only Mortgage Calculator shows the two very different sides of an interest-only home loan: the low monthly payment you make during the interest-only period, and the much higher payment once the loan switches to fully amortizing. It reveals the exact payment shock when the interest-only term ends, confirms that you still owe the entire original balance at that point, and compares your total interest with a standard amortizing mortgage so you can see the true long-term cost.

What Is an Interest-Only Mortgage?

An interest-only mortgage is a home loan that lets you pay only the interest for an initial period — typically 5, 7, or 10 years. Because none of your payment goes toward the principal during this phase, your monthly payment is lower and your loan balance stays exactly the same. When the interest-only period ends, the loan becomes a normal amortizing loan: you start repaying principal plus interest over the remaining term, and the monthly payment jumps.

How the Calculation Works

There are two phases, each with its own payment formula.

Here \( P \) is the loan amount and \( i \) is the monthly interest rate (annual rate ÷ 12). Since you pay only interest, the balance \( P \) never changes during this phase.

When the interest-only period ends, the full balance \( P \) is repaid over the remaining \( n \) months. Because \( n \) is smaller than a standard 30-year schedule, the payment is higher than it would have been on a comparable amortizing loan.

How Much Do You Owe When the Interest-Only Period Ends?

You owe 100% of the original loan amount. This is the most misunderstood part of interest-only loans: years of payments can go by without reducing your debt by a single dollar. That is why this calculator highlights the remaining balance and shows how it must be repaid in a compressed timeframe.

Interest-Only vs Standard Mortgage

Pros and Cons of Interest-Only Mortgages

How to Use This Calculator

1. Enter your loan details: Type the loan amount and annual interest rate, and pick your currency.
2. Set the terms: Choose the total loan term (for example 30 years) and the interest-only period (for example 10 years).
3. Click Calculate: The tool computes the interest-only payment, the amortizing payment, and the payment shock.
4. Review your results: See the animated payment timeline, the balance-over-time chart, the principal still owed when the interest-only term ends, and how total interest compares with a standard loan.

Frequently Asked Questions

What is an interest-only mortgage?

An interest-only mortgage lets you pay only the interest for an initial period, often 5 to 10 years. During that time your monthly payment is lower because none of it goes toward the principal. When the interest-only period ends, the loan converts to a fully amortizing loan and you begin paying both principal and interest, which makes the payment jump significantly.

How is the interest-only payment calculated?

The interest-only payment equals the loan balance multiplied by the monthly interest rate. For example, a 400,000 loan at 6% has a monthly rate of 0.5%, so the interest-only payment is 400,000 × 0.005 = 2,000 per month. Because no principal is repaid, the balance stays the same throughout the interest-only period.

How much principal do I owe when the interest-only period ends?

You owe the full original loan amount. Interest-only payments do not reduce the balance at all, so when the interest-only term ends you still owe 100% of what you borrowed. This calculator shows that remaining balance and how it must then be repaid over the shorter remaining term.

Why does my payment jump after the interest-only period?

After the interest-only period the full principal must be repaid over fewer years than a standard loan would allow. Squeezing the same principal into a shorter amortization window, plus adding the principal portion that was previously skipped, makes each payment noticeably higher. This calculator shows the exact dollar and percentage increase, often called payment shock.

Do interest-only mortgages cost more overall?

Usually yes. Because you do not reduce the principal during the interest-only period, interest keeps accruing on the full balance for longer. Over the life of the loan you typically pay more total interest than with a standard amortizing loan of the same rate and term. This tool shows the difference side by side.

Who should consider an interest-only mortgage?

Interest-only mortgages can suit borrowers with irregular or rising income, real-estate investors focused on cash flow, or people who plan to sell or refinance before the interest-only period ends. They carry more risk because the balance does not fall and payments rise later, so they are not ideal for buyers who need steady, predictable long-term payments.

Additional Resources

• Interest-Only Loan - Wikipedia
• Mortgage Loan - Wikipedia