Interest-only mortgage calculator
Enter your loan, see the payment during and after the interest-only period.
How is an interest-only payment calculated?
Balance × annual rate ÷ 12. On $300,000 at 6%, that is $1,500 a month — nothing goes to principal.
What happens when the interest-only period ends?
The CFPB lists the options: pay off the balance at once, refinance if you can, or start paying it down with monthly payments that are higher than the interest-only ones. In the example, paying it off over the remaining 20 years takes $2,149.29 a month.
Does it cost more overall?
Usually. The example pays $395,830 in interest, against $347,515 for a standard 30-year loan at the same rate with a steady $1,798.65 payment.
Does the calculator include a rate change?
No — it keeps the rate fixed. Many interest-only loans are adjustable-rate, so the later payment could be higher or lower.
Does the payment include taxes and insurance?
No — only principal and interest. Property tax, homeowners insurance and any mortgage insurance come on top.
How much does the payment jump when principal starts?
On the example it goes from $1,500 to $2,149.29, an increase of 43%, even though the rate has not changed. The OCC warns that payments on these loans can rise as much as double or triple after the interest-only period.
Do I build equity during the interest-only period?
Not by paying the loan down. After 10 years of interest-only payments the balance is still $300,000, while on a standard 30-year loan at the same rate it would be about $251,057. Your equity grows only if the home’s value rises or you make extra principal payments, and it can shrink if the value falls.
Can an interest-only loan be a Qualified Mortgage?
No. Regulation Z’s Qualified Mortgage definition (12 CFR 1026.43(e)(2)(i)) does not allow a loan to increase the principal or defer its repayment, and an interest-only period defers repayment.
How the two payments are calculated
During the interest-only years the payment is the balance × the annual rate ÷ 12, and the balance stays the same. After that, the full balance is repaid over the years that remain with the standard fixed-payment formula, P × r ÷ (1 − (1 + r)⁻ⁿ), where r is the monthly rate and n the months left. Because the same balance is repaid over a shorter time, that payment is higher than the one on a loan amortized over the whole term.
Worked example: $300,000 at 6%, 30 years, 10 interest-only
For the first 10 years the payment is $300,000 × 6% ÷ 12 = $1,500, and the balance is still $300,000 after 120 payments. The remaining 20 years then require $2,149.29 a month, which is $350.64 more than the $1,798.65 of a standard 30-year loan. Over the full term you pay $395,830 in interest instead of $347,515, a difference of $48,316.
Common mistakes
Judging the loan by the low early payment is the main one; the OCC points out that it can lead borrowers to take a bigger loan than they can afford once the payment rises. Counting on a sale or refinance to escape the higher payment is another, because the CFPB advises not to count on either and says to consider another loan if you could not afford the higher payment. Most interest-only loans have adjustable rates, according to the OCC, so a fixed-rate calculation is a starting point and not a forecast. And forgetting that principal, taxes and insurance still come due makes the early payment look lower than the real cost of owning the home.
Sources: CFPB, What is an “interest-only” loan? (reviewed September 11, 2024); Office of the Comptroller of the Currency, Interest-Only Mortgage Payments and Payment-Option ARMs (consumer booklet); Regulation Z, 12 CFR 1026.43(e)(2)(i), on features a Qualified Mortgage may not have. The payment formulas are the standard ones used in the mortgage calculator. Compare with a recast, an refinance or a biweekly plan.
Estimates for planning only — not financial or tax advice. Your lender, plan or tax professional decides. How we check our calculators.