Interest-Only Loan Calculator
Compare payments during an interest-only period with the jump once principal repayments begin.
About the Interest-Only Loan Calculator
Enter the loan amount, rate, the length of the interest-only period and the total term. The calculator shows the interest-only payment, the higher payment once the loan starts being repaid, and the total interest compared with a normal repayment loan.
During the interest-only period the balance doesn't fall. Afterwards the whole loan must be repaid over the remaining, shorter term, which can raise payments sharply (payment shock).
The formula
Interest-only payment = P × r ÷ 12; then amortize P over the remaining months
- P
- loan amount
- r
- yearly rate as a decimal
Worked example
300,000 at 6.5%, 10 years interest-only within a 30-year term
- Years 1–10: 300,000 × 0.065 ÷ 12 = 1,625.00 a month
- Years 11–30: 2,236.72 a month, 38% more
- Total interest 431,813, versus 382,633 on a normal 30-year loan (1,896.20 a month)
Things to keep in mind
- Assumes a fixed rate; many interest-only loans are variable, so payments can change.
- Doesn't include repaying the balance from a sale or another source at the end.
Questions people ask
Who uses interest-only loans?
Property investors and borrowers expecting higher income later.
Does it cost more overall?
Yes, because the balance stays high for longer.
Can I pay extra during the interest-only period?
Usually yes, and every extra payment lowers the balance the later payments are worked out on.