Interest-Only Payment Calculator
Work out the interest-only payment on a mortgage, HELOC or business loan, the higher payment once principal repayment starts, the payment shock, total interest against a standard loan, or the most you can borrow for a given payment. Any payment frequency, daily-interest options, rate resets, extra principal and a full schedule.
How it works
Interest-only payment = loan × annual rate ÷ payments per year · After the IO period: M = B × r ÷ (1 − (1 + r)^−n), where B is the balance at the reset, r the rate per payment and n the payments left · Interest during IO = sum of balance × r over the IO payments · Maximum loan = affordable payment ÷ r
During the interest-only period you pay only the interest, so the balance does not shrink and the payment is as low as it can get. When that period ends the loan has to repay the whole balance over the shorter time that remains. That pushes the payment sharply higher, which lenders call payment shock. The calculator shows the jump in money and as a percentage, the interest paid in each phase and the extra interest compared with a loan that amortizes from day one. Choose the payment frequency (monthly, twice a month, every two weeks, weekly, quarterly or yearly), let the rate reset at the end of the interest-only period as it does on many adjustable loans and HELOCs, add extra principal during the interest-only years, and switch to daily interest (actual/365 or actual/360) to see how the payment varies with the length of the month. Make the interest-only period equal to the term to model a balloon loan. Use “Loan I can afford” to turn a payment budget into the largest loan it supports during the interest-only years. Interest-only loans can suit people with irregular income, investors focused on cash flow and short-term borrowers, but they build no equity until principal repayment starts.
Worked example
On a $400,000 loan at 7.5%, the interest-only payment is 400,000 × 0.075 ÷ 12 = $2,500 a month for the first 10 years: $300,000 of interest, with the balance still $400,000. Repaying it over the remaining 20 years takes $3,222.37 a month, a jump of $722.37 (28.9%). Over the life of the loan you pay $673,369 of interest. A standard 30-year loan at the same rate costs $2,796.86 a month and $606,869 of interest, so the interest-only years add about $66,500. Working backwards, a $2,500 monthly interest-only budget at 7.5% supports a loan of up to $400,000.
Frequently asked questions
Do I build any equity during the interest-only period?
Not from the payments — the balance stays flat because you only cover interest. Any equity comes from the property rising in value, or from extra principal you choose to pay. When the interest-only period ends you still owe the full balance.
How big is the payment jump?
Often 25–40% or more, because the whole balance has to be repaid over fewer years than a standard loan. The shorter the remaining term and the higher the reset rate, the bigger the jump. The calculator shows it in money and as a percentage.
Why does my HELOC payment change from month to month?
Most HELOCs charge interest by the day. A 31-day month costs more than a 28-day month on the same balance, and the payment also moves with the balance drawn and the variable rate. Choose daily interest under More options to see the range.
What is the difference between actual/365 and actual/360?
Both charge interest for the actual days. Actual/365 divides the annual rate by 365, so a year’s interest equals the quoted rate. Actual/360, common on commercial loans, divides by 360, so you pay the daily rate for 365 days and the real cost is the rate × 365 ÷ 360, about 0.1 percentage point more at 7.5%.
How much can I borrow on an interest-only payment?
Divide the payment you can afford by the rate per payment. At 7.5% a $2,500 monthly interest-only payment supports $400,000. Lenders usually qualify you on the higher payment after the reset, so check that payment too.
Who should consider an interest-only loan?
They can fit borrowers with irregular or bonus-heavy income, investors focused on cash flow, or people who will sell or refinance before the reset. For a typical buyer planning to stay long term, a standard amortizing loan builds equity and avoids payment shock. Interest-only mortgages are not qualified mortgages under CFPB rules, so fewer lenders offer them.
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This is an educational estimate, not financial advice. Lenders use their own rounding, fees, mortgage-insurance rules and credit terms — confirm exact figures with your lender or a licensed advisor.