Interest-Only Mortgage Calculator
See the low interest-only payment, the higher payment when principal starts, and what the structure costs compared with a standard loan.
Interest-only payment
$2,250
- After year 10
- $3,041
- Payment jump
- +35%
- Standard loan payment
- $2,594
- Total interest, IO
- $599,949
- Total interest, standard
- $533,981
- Extra cost of IO
- $65,968
Monthly payment by year
Explain my numbers
Get a plain-English reading of the result above: what drives it, what the trade-offs are and what to ask a lender or adviser. It is educational, not financial advice. Only these inputs and results are sent, and nothing is stored.
The two formulas
IO payment = Balance × annual rate ÷ 12
Reset payment = P · r(1+r)m ÷ ((1+r)m − 1), m = months left
The reset is where borrowers get caught out. Nothing was repaid during the interest-only years, so the whole balance is amortized over a shorter window. If the loan is also adjustable, the rate can reset at the same time, which makes the jump larger still.
Frequently asked questions
How is an interest-only payment calculated?
Multiply the loan balance by the annual rate and divide by 12. A $400,000 loan at 6.75% costs $2,250 a month during the interest-only period. None of it reduces the balance.
What happens when the interest-only period ends?
The full balance must then be repaid over the remaining years, so the payment jumps. On a 30-year loan with 10 interest-only years, the principal is squeezed into 20 years and the payment can rise by 30–40% or more even if the rate stays the same.
Do interest-only loans cost more in total?
Yes. Because the balance does not fall during the interest-only years, you pay interest on the full amount for longer. Compare the two total-interest figures in the results.
Who uses interest-only mortgages?
Mostly borrowers with irregular or rising income, investors, or buyers who expect to sell before the reset. They are non-qualified mortgages in the US, so they are less common and usually require strong credit and reserves.