Interest Only Calculator

Updated Sep 1, 2026 By Jehan Wadia

Payment Summary

Step-by-Step Solution

Interest vs. Principal (Full Loan)

Total Interest Loan Principal

Remaining Balance Over Time

Interest-Only Payment by Frequency

Interest-only payment for the same principal and rate across nine payment frequencies. The monthly row is highlighted.
Payment Frequency	Periods / Year	Interest-Only Payment

Two-Phase Amortization Schedule

View Schedule By:

Monthly Yearly

Introduction

An interest-only loan lets you pay just the interest for the first few years. During this time, your monthly payment is lower because you are not paying down the loan balance. But when that period ends, your payment jumps up, sometimes by a lot. This can catch people off guard if they don't plan ahead.

This interest only calculator shows you exactly what your payments will be during both phases of the loan. Enter your loan amount, interest rate, interest-only period, and total loan term to see your monthly payment now, your higher payment later, and how much total interest you will pay. You can also add an optional extra payment each month to see how much money and time you could save by paying down principal early.

The calculator gives you a full payment schedule, a step-by-step breakdown of the math, and a chart of your remaining balance over time. Use it to compare costs, prepare for the payment increase, and decide if an interest-only mortgage is the right choice for you.

How to Use Our Interest Only Calculator

Enter your loan details below to see your monthly interest only payment, your higher payment after the interest only period ends, and your total interest cost over the life of the loan.

Loan Amount: Type in the total amount you plan to borrow. This is the full principal balance of your loan, up to $100,000,000.

Annual Interest Rate: Enter the yearly interest rate on your loan. This is the APR your lender gives you, from 0.001% to 30%.

Interest-Only Period: Choose how many years you will make interest only payments. During this time, your balance stays the same because you are not paying down the principal.

Total Loan Term: Enter the full length of your loan in years. This includes both the interest only period and the time you spend paying off the principal. It must be longer than the interest only period.

Additional Monthly Prepayment: Enter any extra money you want to pay toward your principal each month. This helps you pay off the loan faster and save on interest. Set this to 0 if you do not plan to make extra payments.

Click Calculate Interest Only Payments to see your results. The calculator will show your monthly payments for both phases, a step-by-step breakdown of the math, an amortization schedule, and a chart of your remaining balance over time.

What Is an Interest-Only Loan?

An interest-only loan is a type of loan where you only pay the interest for a set number of years. During this time, your monthly payment is lower because you are not paying down the loan balance at all. The money you owe stays the same. This is different from a standard mortgage, where every payment includes both interest and principal from the start.

After the interest-only period ends, the loan switches to regular payments. Now each payment covers both interest and a portion of the principal. Because you have fewer years left to pay off the full balance, your monthly payment goes up, sometimes by a lot. This jump in payment is often called payment shock.

How This Calculator Helps

This interest-only calculator shows you exactly what your payments will be during both phases of the loan. It calculates your low interest-only payment, your higher amortizing payment, and the difference between them. It also shows the total interest you will pay over the life of the loan and builds a full payment schedule so you can see how your balance changes month by month.

If you plan to make extra payments toward your principal, enter that amount in the prepayment field. The calculator will show you how much interest you can save and how many months earlier you could pay off the loan.

Who Uses Interest-Only Loans?

Interest-only loans are common in real estate investing, jumbo mortgages, and construction lending. Some borrowers choose them to keep payments low in the early years when cash flow is tight. Others use them as a short-term strategy when they plan to sell or refinance before the amortizing period begins.

Risks to Keep in Mind

Because you are not paying down the principal during the interest-only phase, you do not build equity from your payments. If property values drop, you could owe more than your home is worth. You also pay more total interest over the life of the loan compared to a standard mortgage with the same rate and term. Before committing, make sure you can afford the higher payment that kicks in after the interest-only period ends.

Formulas used

Monthly Interest-Only Payment (Phase 1)

\text{IO Payment} = \frac{r_{annual} \times P}{12}

Monthly Amortizing Payment (Phase 2)

M = P \cdot \frac{i(1+i)^{n}}{(1+i)^{n}-1}

Payment Increase at Transition

\Delta = M - \text{IO Payment}

Total Interest During Interest-Only Period

\text{Interest}_{IO} = \text{IO Payment} \times n_{IO}

Total Cost of Loan

\text{Total Cost} = P + \text{Interest}_{total}

Interest-Only Payment by Frequency

\text{Payment} = \frac{P \times r_{annual}}{f}

Frequently asked questions

What is the interest-only payment formula?

The formula is simple. Multiply your loan amount by the annual interest rate, then divide by 12. For example, a $400,000 loan at 6.5% gives you ($400,000 × 0.065) ÷ 12 = $2,166.67 per month. This is all interest. None of it reduces your balance.

Why does my payment go up after the interest-only period?

During the interest-only phase, you are not paying down any of the loan balance. When that phase ends, you must pay off the full balance in the remaining years. You now owe both interest and principal each month, and you have fewer years left. That is why the payment jumps up.

How much will my payment increase after the interest-only period ends?

It depends on your loan terms. On a $400,000 loan at 6.5% with a 5-year interest-only period and a 30-year total term, your payment rises from about $2,167 to about $2,898, an increase of roughly 34%. The calculator shows you the exact increase for your numbers.

Does my loan balance go down during the interest-only period?

No. Your balance stays the same because your payment only covers interest. The principal does not shrink at all. The only way to reduce your balance during this phase is to make extra payments toward principal using the prepayment option.

Can I make prepayments during the interest-only period?

Yes. This calculator applies your extra payment during both phases. During the interest-only period, the extra amount goes directly to principal, which reduces your balance before the amortizing phase starts. This means your Phase 2 payment will also be lower.

What is payment shock?

Payment shock is the sudden jump in your monthly payment when the interest-only period ends. Your payment can increase by 30% or more. This calculator shows you the exact dollar amount and percentage of the increase so you can plan ahead.

What is the difference between the interest-only period and the total loan term?

The interest-only period is Phase 1, where you pay only interest. The total loan term is the full length of the loan, including Phase 1 and Phase 2. Phase 2 is when you pay off the principal. For example, a 5-year interest-only period inside a 30-year term means you amortize over the remaining 25 years.

How is total interest calculated on an interest-only loan?

The calculator adds up all the interest from both phases. In Phase 1, you pay a flat amount of interest each month. In Phase 2, the interest portion shrinks each month as your balance goes down. The sum of all interest from both phases is your total interest cost.

Is an interest-only loan the same as a balloon loan?

No. With an interest-only loan, you start paying principal after the IO period ends. With a balloon loan, you owe the entire remaining balance as one lump sum at the end. Interest-only loans transition to regular payments; balloon loans require full payoff or refinancing.

Do I build equity during the interest-only period?

Not from your payments. Your balance stays the same, so you only build equity if your property goes up in value. If home prices fall, you could end up owing more than your home is worth. Making extra prepayments is one way to build equity during this phase.