Interest-Only Mortgage Calculator
Compare the low interest-only payment with the payment after the interest-only period ends, see the payment shock, total interest against a standard loan, rate resets, extra payments, balloon loans and a full schedule.
How it works
Interest-only = loan × rate ÷ 12 · After IO: M = P × i ÷ (1 − (1 + i)^−n) over the remaining months · Extra interest = total interest − interest on a loan that amortizes over the full term
During the interest-only period you pay only the monthly interest, so the payment is low but the balance does not shrink unless you add extra principal. When that period ends, the balance is repaid over the shorter remaining term with the standard amortization formula, where P is the balance, i the monthly rate and n the months left. That forces the payment sharply higher — the “payment shock” that catches borrowers out. Many interest-only loans are adjustable-rate mortgages, so you can set a different rate for the years after the reset. If the interest-only period runs for the whole term, nothing is repaid and the full balance falls due at the end as a balloon payment. The calculator also prices the same loan as a standard mortgage that amortizes over the full term, so you can see the extra interest that the low early payments cost. Extra principal paid in the interest-only years lowers both the interest-only payment and the later payment; extra principal after the reset shortens the loan.
Worked example
On a $300,000 loan at 6% with a 10-year interest-only period and a 30-year term, interest only is $300,000 × 0.06 ÷ 12 = $1,500 a month for 10 years, or $180,000 of interest. The $300,000 then amortizes over the remaining 20 years at $2,149.29 a month — a 43% jump — adding $215,830 of interest, for $395,830 in total. A standard 30-year loan at the same rate would cost $1,798.65 a month from the start and $347,515 of interest, so the interest-only years add about $48,300. If the rate resets to 7.5% after year 10, the later payment rises to $2,416.78.
Frequently asked questions
Why would anyone choose interest-only?
To keep early payments low — useful if you expect your income to rise, plan to sell before the reset, or want to put the cash elsewhere. The risks are the payment shock, building no equity from payments, and paying more interest in total, which the comparison with a fully amortizing loan shows.
Do I build any equity during the interest-only years?
Not from the required payments — the balance stays flat. Equity comes only from any rise in the home’s value or from extra principal you choose to pay. Turn on extra payments to see how much equity they build and how they lower the later payment.
What happens when the interest-only period ends?
The loan recasts to a fully amortizing payment over the remaining term, which is always higher. If the loan is an adjustable-rate mortgage, the rate can also change at that point; use the rate-change option to test it. Some borrowers refinance before the reset, but that depends on rates, home values and their credit at the time.
What is an interest-only balloon loan?
A loan where the interest-only period lasts the whole term, so no principal is ever repaid and the full balance is due at the end. Set the interest-only period equal to the total term to see the balloon payment.
How much more does an interest-only loan cost?
Because the principal is repaid over fewer years, more interest builds up. On a $300,000 loan at 6% over 30 years, a 10-year interest-only period adds about $48,300 of interest compared with a standard loan.
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This is an educational estimate, not financial advice. Lenders use their own rounding, fees and terms — confirm exact figures with your lender or a licensed advisor.