Interest-Only Loan Calculator

Calculate the monthly interest-only payment on a loan and compare it to a fully amortising payment.

Loan Amount ($)

Annual Interest Rate (%)

Full Loan Term (years)

Interest-Only Period (years)

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Enter your values and click Calculate

An interest-only loan allows borrowers to pay only the interest charges each month, leaving the principal balance untouched during the interest-only period. This produces lower monthly payments in the short term but means no equity is built and the full principal remains owed. After the interest-only period ends, the loan converts to a standard principal-and-interest amortising schedule over the remaining term — a shorter repayment window than a fully amortising loan started at the same time, which means the P&I payment after conversion is significantly higher. This calculator shows the interest-only monthly payment, the full amortising payment for comparison, the P&I payment after the IO period ends, and the total extra interest cost compared to a conventional loan. Real estate investors, short-term homeowners, and variable-income professionals commonly use interest-only structures.

How It Works

Monthly IO payment = Loan amount × monthly rate, where monthly rate = annual rate ÷ 12 ÷ 100. During the IO period, no principal is repaid, so the balance stays constant. After the IO period ends, the remaining loan term is shorter. The P&I payment after IO uses the standard amortisation formula: M = P × r(1+r)^n ÷ ((1+r)^n − 1), where n is the remaining months. Total interest on the IO loan = (IO payment × IO months) + (post-IO P&I payment × remaining months) − original principal. This is compared to the total interest on a fully amortising loan over the same complete term to show the extra interest cost of the IO structure.

Examples

Standard IO Mortgage

$300,000 at 6.5%, 30-year term, 5-year IO period.

Result: IO payment: ~$1,625/month. P&I after IO period: ~$2,069/month.

High-Value Investment Property

$600,000 at 7%, 25-year term, 10-year IO period.

Result: IO payment: ~$3,500/month. P&I after IO period: ~$5,229/month.

Short IO Period

$200,000 at 5.5%, 20-year term, 3-year IO period.

Result: IO payment: ~$917/month. P&I after IO period: ~$1,459/month.

Frequently Asked Questions

Why does the payment jump so much after the interest-only period?

During the IO period, no principal is repaid, so the same full balance must still be amortised — but now over a shorter remaining term. This compresses the repayment schedule, producing a significantly higher monthly payment than a loan that had been amortising from the start.

Who typically uses interest-only loans?

Real estate investors who plan to sell before the IO period ends and expect property value appreciation, high-income professionals with variable compensation who prefer lower mandatory payments, and developers who need reduced cash outflows during a construction or renovation phase.

Does an interest-only loan cost more overall?

Yes, in almost all cases. Because no principal is reduced during the IO period, interest continues to be charged on the full balance for longer, resulting in more total interest paid compared to a conventional amortising loan at the same rate and term.