How to use this calculator
- Enter the Loan amount and your Interest rate.
- Set the Interest-only period in years and the Total loan term in years.
- Read the Interest-only payment and the Payment after the interest-only period.
- Compare Total interest with a regular loan using Extra interest vs a regular loan.
How an interest-only loan works
During the interest-only period you pay only the interest on the full balance, so the balance does not fall. When that period ends, the same balance must be repaid over the remaining years, which means a higher payment than a regular loan of the full term would have required.
Interest-only payment = P · r; later payment M = P · r(1 + r)^k / ((1 + r)^k − 1)- P = loan amount, which stays unpaid during the interest-only period
- r = monthly interest rate (annual rate ÷ 12 ÷ 100)
- k = months left after the interest-only period (total months minus interest-only months)
This calculator assumes the rate stays fixed throughout. Many real interest-only loans are adjustable, which can push the payment up further.
Example: $300,000 at 6.5%, 5 years interest-only
On a 30-year term with a 5-year interest-only period, the first 60 payments are $1,625. After that, the payment is $2,026 for the remaining 25 years: a jump of $401 a month.
A regular 30-year loan at the same rate costs $1,896 a month from day one. Total interest on the interest-only structure is about $405,186, which is roughly $22,553 more than on the regular loan.
What a longer interest-only period does
Lengthen the interest-only period to 10 years and the first payment is still $1,625, but the later payment rises to $2,237, a $612 jump, and extra interest grows to about $49,179. The longer you postpone principal, the harder the catch-up.
Compare the scenarios against a standard loan on the mortgage calculator and see how principal is repaid on the amortization calculator.
Who it might suit and how to decide
Interest-only can fit someone with uneven income, such as commission or bonuses, or a buyer who expects to sell or refinance before repayment starts. It is risky if the plan depends on the home rising in value, because you build no equity from payments during the period.
Test whether you could afford the higher payment today. If not, you are relying on future income or a refinance that may not be available. Check the ratio with the debt-to-income calculator.
Ways to reduce the risk
- Budget with the later payment, not the interest-only payment.
- Make voluntary principal payments during the interest-only years if the loan allows it.
- Keep an emergency fund large enough to cover several payments at the higher amount.
- Ask about rate adjustments, caps and prepayment penalties before signing.
Assumptions and limits
The tool uses one fixed rate for the whole term and ignores taxes, insurance, fees, balloon structures and any rate reset. Some interest-only products end with a lump-sum balloon instead of amortizing, which this tool does not model.
Product rules differ by lender and country, so read the loan documents and ask a lender or independent adviser before choosing this structure.
Frequently asked questions
Do I build equity with an interest-only loan?
Not from payments during the interest-only period, since none goes to principal. You only gain equity if the home's value rises or you pay extra.
Why does my payment jump after the interest-only period?
The full balance must now be repaid over fewer remaining years, so each payment includes both interest and a larger principal share.
Is interest-only cheaper overall?
No. The lower early payment is paid for with more total interest, because the balance stays high longer.
Can I pay extra during the interest-only period?
Often yes, but check your loan terms. Extra principal reduces the balance and the later payment.