Interest-Only Mortgage Calculator: Payments Now and After
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An interest-only mortgage payment is the loan amount times the monthly rate. On $400,000 at 6.75% that is $2,250 a month, and the balance does not go down until the interest-only period ends.
The payment rises by more than 30% when the interest-only period ends. Make sure your budget can handle it.
A $400,000 loan at 6.75% costs $2,250.00 a month for the first 10 years and does not reduce the balance. After that the payment jumps to $3,041.46, a 35% increase. A standard 30-year loan costs $2,594.39 a month.
Year-by-year
| Year | Monthly payment | Interest | Principal | Balance |
|---|---|---|---|---|
| 1 | $2,250.00 | $27,000 | $0 | $400,000 |
| 2 | $2,250.00 | $27,000 | $0 | $400,000 |
| 3 | $2,250.00 | $27,000 | $0 | $400,000 |
| 4 | $2,250.00 | $27,000 | $0 | $400,000 |
| 5 | $2,250.00 | $27,000 | $0 | $400,000 |
| 6 | $2,250.00 | $27,000 | $0 | $400,000 |
| 7 | $2,250.00 | $27,000 | $0 | $400,000 |
| 8 | $2,250.00 | $27,000 | $0 | $400,000 |
| 9 | $2,250.00 | $27,000 | $0 | $400,000 |
| 10 | $2,250.00 | $27,000 | $0 | $400,000 |
| 11 | $3,041.46 | $26,701 | $9,797 | $390,203 |
| 12 | $3,041.46 | $26,018 | $10,479 | $379,724 |
Show the steps
- Interest-only payment: $400,000.00 × 6.750% ÷ 12 = $2,250.00. The balance stays at $400,000.00.
- After 10 years you repay the full $400,000.00 over the remaining 240 months at 6.750%: $3,041.46 a month.
- Total interest: $2,250.00 × 120 + $3,041.46 × 240 − $400,000.00 = $599,949.45.
Interest-only loan
Interest-only payment = L × r
Later payment = L × r ÷ (1 − (1 + r)^−m), m = months left
r = annual rate ÷ 12
- Interest-only loans are riskier than standard loans. If home prices fall, you may owe more than the home is worth because you built no equity.
- Interest-only loans are usually not qualified mortgages, and lenders often require a larger down payment and higher credit score.
Estimates for planning and learning, not financial, tax, legal or medical advice. Check figures with your lender, tax preparer or doctor before you act.
About this calculator
With an interest-only mortgage you pay only the interest for the first few years, commonly 5 to 10. Payments are lower at first, but you build no equity from your payments. When the period ends, you repay the whole balance over the years that remain, so the payment jumps.
This calculator shows both payments, the size of the jump, and the extra interest compared with a regular loan of the same total term. You can enter a different rate for the second phase to test an adjustable loan.
How to use it
- Enter the loan amount and interest rate.
- Enter the total term and the number of interest-only years.
- Optionally change the rate after the interest-only period in the options.
- Compare the payment before and after, and read the balance chart and table.
Who uses interest-only loans
They suit borrowers whose income is uneven or expected to grow, investors who plan to sell or refinance, and buyers who want to keep cash free for other investments. They are risky for anyone who relies on rising home prices to build equity.
The payment shock
Because the same balance is repaid over fewer years, the payment after the interest-only period is higher than a standard loan’s. With 10 interest-only years on a 30-year loan, you repay 20 years of principal instead of 30.
Sources
Quick check: test yourself
An interest-only loan of $500,000 at 6% costs how much per month?
Correct answer: $2,500. $500,000 × 0.06 ÷ 12 = $2,500.
How much of the balance do you pay off during the interest-only period?
Correct answer: None. Payments cover only interest, so the balance stays the same.
What usually happens to the payment when the interest-only period ends?
Correct answer: It rises. You must now repay the same balance over fewer years.
Pick an answer for each question.
Common questions
How is an interest-only payment calculated?
Multiply the loan amount by the annual rate and divide by 12.
What happens after the interest-only period?
You begin repaying principal and interest over the remaining term, so the payment rises.
Do I build equity with an interest-only loan?
Not from payments. You build equity only if the home’s value rises or you make extra principal payments.
Is an interest-only loan cheaper overall?
No. Because the balance stays higher for longer, you usually pay more total interest than with a standard loan.
Can I make principal payments during the interest-only period?
Usually yes. Ask your lender, because some loans limit prepayment.
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