Interest-Only Mortgage Calculator — See Your Real Monthly Payment

Interest-only mortgages offer lower initial payments by requiring borrowers to pay only the interest accruing each month without reducing the principal balance. This structure appeals to real estate investors who want to maximize monthly cash flow during a defined hold period before selling, to high-income earners expecting a large future bonus or liquidity event that will allow a lump-sum principal paydown, and to buyers in expensive markets who need to qualify for a larger loan amount with a lower initial payment. The key risk is that principal repayment is entirely deferred — when the interest-only period ends, monthly payments jump substantially because the full original principal must now be amortised over only the remaining shorter loan term, not the full original term. This payment increase is often called payment shock. This calculator shows the monthly IO payment, the higher post-IO amortising payment, a full-term standard P&I comparison, and the total interest paid during the IO phase, giving you a clear picture of the cost and payment-shock risk before committing to this loan structure.

During the interest-only period the monthly payment is simply the loan balance multiplied by the monthly interest rate — that is, IO payment = principal × (annual rate ÷ 12). Because you pay only the interest and never touch the principal, the balance stays frozen at its original amount and every interest-only month costs exactly the same; multiplying that payment by the number of IO months gives the total interest paid during the phase, money that buys you no equity. When the interest-only period ends the loan does not get easier: the full original balance must now be repaid over the shorter remaining term using the standard amortisation formula M = P × [r(1+r)^n] ÷ [(1+r)^n − 1], where n is the number of months left after the IO period. Because those early years were used up paying interest only, the principal is squeezed into fewer payments and the monthly amount jumps sharply — often 30–60% higher. This sudden increase is called payment shock, and the calculator shows both the new payment and the size of the jump so you can plan for it. Interest-only loans suit borrowers with a concrete exit: real-estate investors who sell before the IO period ends, high earners expecting a bonus or liquidity event to clear the principal in a lump sum, or buyers using the lower payment to qualify who intend to refinance. The core danger is that the principal never shrinks — you build no equity during the IO period, so if property values fall you can owe more than the home is worth, and the payment shock arrives whether or not your repayment plan works out. Finally, the calculator totals every payment across the full term and compares it to a standard repayment mortgage, revealing the extra lifetime cost of deferring principal.