Interest-Only Mortgage Calculator
Calculate interest-only mortgage payments and the higher amortizing payment after the IO period.
Compare total interest cost vs a standard amortizing mortgage.
Interest-Only Mortgage
An interest-only (IO) mortgage lets you pay only the interest for an initial period — typically 5–10 years — with no reduction in your principal balance. After the IO period ends, the loan converts to a fully amortizing mortgage, and your payments jump significantly.
Payment formulas:
During IO period:
IO Payment = Loan Amount × (Annual Rate / 12)
After IO period (amortizing):
Amortizing Payment = Balance × [r(1+r)^n] / [(1+r)^n - 1]
Where r = monthly rate, n = remaining months
Key risk: payment shock
When the IO period ends, your payment increases for two reasons:
- You now pay principal as well as interest
- The same loan balance must be paid off in fewer remaining years
A $500,000 loan at 6% with a 10-year IO period:
- IO payment: $2,500/month
- After IO (20-year amortization): ~$3,582/month: a 43% jump
Comparison with standard mortgage:
| Feature | Interest-Only | Standard |
|---|---|---|
| Early payments | Lower | Higher |
| Principal reduction | None during IO period | Starts immediately |
| Total interest paid | Higher | Lower |
| Payment after IO | Significant increase | No change |
When interest-only makes sense:
- High-income earners with variable income who prefer flexibility
- Investors expecting to sell or refinance before the IO period ends
- Buyers who need lower early payments to qualify
- Those who invest the savings aggressively and earn higher returns
Caution: If property values fall and you have not paid down any principal, you may owe more than the home is worth — negative equity. Interest-only loans amplify this risk.
How we build and check this calculator
This calculator runs entirely in your browser, so the numbers you enter stay on your device. The math behind it is written by hand and tested against worked examples and standard references before the page goes live.
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