Interest-Only Mortgage Calculator

What is an interest-only mortgage?

An interest-only mortgage allows scheduled payments during an initial period to cover interest without requiring scheduled principal repayment. If the borrower makes only the required interest payment, the mortgage balance generally does not decline during that phase.

When the interest-only period ends, principal repayment begins. If the loan must still be fully repaid by its original maturity date, the same principal is then amortized over fewer remaining years. That is why the required principal-and-interest payment can increase substantially even if the interest rate does not change.

How to calculate an interest-only mortgage payment

For a fixed interest rate and no principal payment, the basic monthly interest-only calculation is straightforward:

For example, a $400,000 balance at 6.50% produces a scheduled interest-only payment of about $2,166.67 per month before property taxes, homeowners insurance, HOA dues, or other housing expenses.

What happens when the interest-only period ends?

Suppose a 30-year mortgage has a 10-year interest-only period. If no principal is paid during those first ten years, the original balance still needs to amortize over the remaining 20 years. That shorter repayment window produces a higher scheduled P&I payment than a 30-year fully-amortizing loan at the same rate.

The calculator therefore puts the post-IO payment near the top of the results instead of focusing only on the attractive introductory payment.

Interest-only vs. fully-amortizing mortgage

The biggest risk: payment shock

A low initial payment can make an interest-only mortgage appear easier to carry than it will be later. The transition to amortization can create payment shock because principal must begin being repaid over the remaining term.

Some interest-only mortgages also have adjustable interest rates. In that situation, the payment can be affected by both the end of the interest-only period and a change in the mortgage rate. This calculator intentionally uses a fixed rate so you can isolate the effect of delayed principal repayment.

When an interest-only mortgage may be considered

Interest-only structures can appeal to borrowers who place a high value on near-term cash-flow flexibility and understand the later repayment obligation. But the lower initial payment should be evaluated alongside the post-IO payment, total interest, loan balance, expected time in the property, and the possibility that refinancing or selling may not occur as planned.

Qualification standards and available interest-only products can differ considerably by lender and borrower profile. A calculator can model the payment mechanics, but it cannot determine whether a particular loan is available or appropriate for a borrower.

Interest-only mortgage example

Consider a $400,000 mortgage at a fixed 6.50% rate with a 30-year total term and a 10-year interest-only period. The interest-only P&I payment is about $2,166.67 per month. If the balance remains $400,000 when the IO period ends, amortizing that balance over the remaining 20 years at the same 6.50% rate requires a P&I payment of roughly $2,982 per month.

That example illustrates why comparing only the first payment can be misleading. The calculator above performs the same transition using the loan amount, rate, term, and IO period you enter.

Frequently asked questions