Interest-Only Mortgage Calculator
Calculate the monthly payment on an interest-only mortgage and compare it to the fully amortizing principal-and-interest payment.
How to use this tool
- Enter your loan amount and interest rate.
- Enter the amortizing term you want to compare against.
- See your interest-only payment and the larger payment that would also pay down principal.
- Use the difference to judge how fast you could build equity.
An interest-only mortgage keeps early payments low because you pay no principal. Enter your loan to see the interest-only payment, its annual cost, and how much more a fully amortizing payment would be.
Formula
Interest-only payment = loan × (APR ÷ 12). The balance never falls while you pay interest only.
Amortizing P&I payment = P · r / (1 − (1 + r)−n), the payment that would also retire the principal over the term.
Extra to also pay principal = amortizing payment − interest-only payment.
How it works
An interest-only mortgage lets you pay only the interest for an introductory period, so the monthly payment is just the balance multiplied by the monthly rate. The principal stays fixed, which keeps payments low but means you build no equity through payments during that window. The calculator also shows the fully amortizing payment — the amount that would retire the loan over the stated term — and the extra dollars per month needed to start reducing principal.
Interest-only loans suit borrowers expecting rising income, a lump sum, or a short hold, but they carry real risk: when the interest-only period ends, payments reset to a higher amortizing amount over a shorter remaining term, and the full principal is still owed. This estimate assumes a fixed rate and ignores taxes, insurance, and any payment recast at the end of the IO period.
Reviewed by the AbraCalc Mortgage Desk. Educational estimate only, not financial advice; review your note for the interest-only term and the reset terms that follow it.
Worked example
$300,000 at 6% (30-year amortizing comparison)
- Monthly rate r = 6% ÷ 12 = 0.005.
- Interest-only payment = 300,000 × 0.005 = $1,500.00.
- Annual interest = 1,500 × 12 = $18,000.00.
- Amortizing payment over 360 months = 300,000 × 0.005 ÷ (1 − 1.005^−360) = $1,798.65.
- Extra needed to also reduce principal = 1,798.65 − 1,500 = $298.65.
Interest-only payment $1,500.00; annual interest $18,000.00; amortizing P&I $1,798.65
Interest-only payment by loan size and rate
| Loan | At 5% | At 6% | At 7% |
|---|---|---|---|
| $200,000 | $833.33 | $1,000.00 | $1,166.67 |
| $300,000 | $1,250.00 | $1,500.00 | $1,750.00 |
| $400,000 | $1,666.67 | $2,000.00 | $2,333.33 |
| $500,000 | $2,083.33 | $2,500.00 | $2,916.67 |
Key terms
- Interest-only mortgage
- A loan that lets you pay only interest for a set period before principal payments begin.
- Amortizing payment
- A level payment that covers both interest and principal so the loan is fully repaid by the end of its term.
- Equity
- Your ownership stake — home value minus the outstanding loan balance.
- Payment reset
- The increase in payment when an interest-only period ends and principal must be repaid over the remaining term.
Frequently asked questions
- How is an interest-only payment calculated?
- Multiply the loan balance by the monthly interest rate (APR ÷ 12). Because no principal is included, the payment is lower than a fully amortizing one but the balance does not shrink.
- What happens when the interest-only period ends?
- Payments reset to a fully amortizing amount that repays the entire principal over the remaining term. Because the term is now shorter, that payment is noticeably higher.
- Is an interest-only mortgage a good idea?
- It can suit borrowers with irregular or rising income or a short ownership horizon, but it builds no equity through payments and risks payment shock. Weigh it against a standard amortizing loan.