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Interest Only Loan Calculator
Enter the loan amount, rate, interest-only period and total term to see the low interest-only payment, the payment jump when principal repayment starts, and how much more interest you pay compared with a loan that amortizes from day one. A balance chart and yearly schedule show both phases.
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% / yr
years
Enter your values to see the result.
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How to use the Interest Only Loan Calculator
- Enter the loan amount and annual interest rate.
- Enter the interest-only period in years (for example 10).
- Choose the total loan term, including the interest-only years.
- Read the IO payment and the payment after the interest-only period ends.
- Compare total interest with a fully amortizing loan and review the yearly schedule.
Interest-only loan formulas
- Interest-only payment = loan amount × annual rate ÷ 12
- Payment after the IO period = L × r(1 + r)m ÷ ((1 + r)m − 1), where m = remaining months after the interest-only period and r = annual rate ÷ 12
- Total interest = IO payment × IO months + amortizing payment × m − L
Example: $300,000 at 6.5% with 10 years interest-only on a 30-year term: IO payment $1,625.00, then $2,236.72 for 20 years. A fully amortizing 30-year loan would be $1,896.20 from the start.
$300,000 loan: 10 years interest-only on a 30-year term
| Rate | IO payment (yrs 1–10) | Payment after (yrs 11–30) | Fully amortizing payment | Extra total interest |
|---|---|---|---|---|
| 5% | $1,250.00 | $1,979.87 | $1,610.46 | $45,400.78 |
| 6% | $1,500.00 | $2,149.29 | $1,798.65 | $48,315.79 |
| 7% | $1,750.00 | $2,325.90 | $1,995.91 | $49,688.54 |
| 8% | $2,000.00 | $2,509.32 | $2,201.29 | $49,771.11 |
Frequently asked questions
How is an interest-only payment calculated?
Multiply the loan balance by the annual rate and divide by 12. A $300,000 loan at 6.5% has an interest-only payment of $300,000 × 0.065 ÷ 12 = $1,625 a month. None of it reduces the principal.
What happens when the interest-only period ends?
The full principal must then be repaid over the remaining term, so the payment rises sharply. A 10-year IO period on a 30-year loan means the whole balance is amortized over 20 years. Some loans instead require a balloon payment of the full balance.
Do interest-only loans cost more?
Yes, over the full term. Because the balance does not fall during the IO period, you pay interest on the full amount for longer. The calculator shows the extra interest compared with a fully amortizing loan of the same rate and term.
Can I pay principal during the interest-only period?
Most interest-only loans allow extra principal payments, which lower the balance and the later amortizing payment. Check your loan terms for any prepayment rules.
Who uses interest-only loans?
They are used by some investors, borrowers with irregular or rising income, and for HELOC draw periods and bridge financing. They carry payment-shock risk, so plan for the higher payment.
Does this include taxes and insurance?
No. The payments shown are principal and interest only. Add property tax, insurance and any HOA for a full housing payment.
Is my data private?
Yes. All calculations run locally in your browser.
Are all the tools on FreeToolCabin tested for quality and accuracy?
Yes! Every tool on our site undergoes automated Q/A testing in real browser environments to ensure high precision, correct output, and zero errors. If you happen to spot a bug or have a suggestion, please contact us at [email protected] and our team will review it right away.
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