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.