Interest-Only Mortgage Calculator
See the lower payment during an interest-only period and how much your payment jumps once principal repayment begins.
How the interest-only mortgage calculator works
This calculator shows the two distinct phases of an interest-only mortgage and the payment jump between them. During the interest-only period you pay just the interest accruing on the balance, so the monthly amount is lower but the principal does not shrink at all.
When that period ends, the loan must fully amortize over whatever term remains, so the payment is recalculated to repay the entire balance in fewer years than the original schedule. The tool computes the modest interest-only payment first, then the larger post-period payment, making the size of the eventual increase clear before you commit rather than after the reset arrives.
Worked example: with loan amount of $400,000, interest rate of 6.75% and total term (years) of 30, the interest-only mortgage calculator shows interest-only payment of $2,250.00.
- Interest-only payment
- $2,250.00
- Payment after IO period
- $3,041.46
- Standard P&I payment
- $2,594.39
- Interest paid during IO
- $270,000
| Loan amount | Interest-only payment |
|---|---|
| $200,000 | $1,125.00 |
| $400,000 | $2,250.00 |
| $600,000 | $3,375.00 |
| $800,000 | $4,500.00 |
The formula
Interest-only payment = balance × r, where r is the annual rate ÷ 12. After the IO period, the amortizing payment = P × r ÷ (1 − (1 + r)^−k), where P is the still-full balance and k is the number of months left in the term after the interest-only years.
- Assumes the balance stays unchanged through the interest-only phase because no principal is scheduled during it.
- The post-period payment is computed over the shortened remaining term, which is why it rises sharply — the same balance now repays in fewer years.
- Assumes a fixed rate for illustration; many interest-only loans are adjustable, so the reset payment can move with the index as well as the schedule.
- Building equity during the IO phase depends entirely on home appreciation or voluntary principal payments, not on the required payment.
- Confirm whether your loan permits principal prepayment during the IO period without penalty — that option changes the math considerably.
Results are estimates for educational purposes and are not financial advice. Confirm exact figures with your lender or a licensed advisor.
Questions about the interest-only mortgage calculator
How big is the payment jump when the interest-only period ends?
It can be substantial. The full balance now has to amortize over a shorter remaining term, so the new payment covers both principal and interest in fewer years than a standard loan.
Depending on the rate and how long the interest-only phase lasted, the increase is often in the range of fifty percent or more — plan for it well in advance.
Do I build any equity during the interest-only period?
Not from your payments. Because you're paying only interest, the balance stays flat, so the loan itself adds no equity.
Any equity gained during that phase comes solely from the home appreciating in value, or from extra principal you choose to pay voluntarily. If prices stall, you can finish the period owing exactly what you started with.
Who is an interest-only mortgage actually suited for?
Borrowers with uneven or rising income — commission earners, business owners, or those expecting a near-term liquidity event — who want lower payments now and can absorb the later reset.
It rewards discipline: investing or saving the payment difference, or paying principal when cash allows. It punishes anyone counting on appreciation alone to bail them out.
Is the Interest-Only Mortgage Calculator free to use?
Yes. Every calculator on MortgageLoansCalculator is completely free, with no sign-up, login or paywall. Run as many scenarios as you like.
How does an interest-only mortgage work?
For an introductory period you pay only the interest, so the payment is lower but the balance does not fall.
When that period ends the payment jumps to cover principal and interest over the remaining term — the payment shock this calculator projects before you commit.
Is an interest-only mortgage a good idea?
It can suit borrowers with irregular income or a clear exit before the interest-only period ends, but it builds no equity in the meantime and the later payment is much higher. For most buyers a standard amortizing loan is safer.
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