Interest-Only Mortgage Calculator
Calculate payments during the interest-only period and the fully amortized period.
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An interest-only mortgage lets you pay only the interest for an initial period (typically 5 to 10 years), after which the loan converts to a fully amortizing payment for the remaining term. This calculator shows both phases so you can plan for the payment increase.
- Enter the loan amount. This is the total amount you plan to borrow.
- Set the interest rate. Interest-only loans sometimes carry slightly higher rates than standard fixed-rate mortgages.
- Choose the interest-only period. Common options are 5, 7, or 10 years. During this time, your payment covers only interest and your loan balance does not decrease.
- Set the total loan term. Typically 30 years. The amortization period after the IO phase is the total term minus the IO period.
The result shows your monthly payment during the IO period, followed by the higher amortized payment. The total interest cost accounts for both phases.
Interest-only payments can be significantly lower than amortized payments, but you build no equity during the IO period. Make sure you are prepared for the payment increase when the IO period ends.
About Interest-Only Mortgages
Interest-only mortgages are used by borrowers who want lower initial payments, expect income growth, or plan to sell or refinance before the IO period ends. They are common in jumbo loan markets and among self-employed borrowers with variable income.
The key risk is payment shock. When the IO period ends, your payment jumps because you must now pay off the full principal in a shorter timeframe. On a 30-year loan with a 10-year IO period, you amortize the entire balance over 20 years instead of 30.
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Frequently Asked Questions
How does an interest-only mortgage work?
During the interest-only period (typically 5 to 10 years), you pay only the interest on the loan. Your loan balance stays the same. After the IO period, the loan converts to a standard amortizing mortgage where each payment includes both principal and interest.
How much higher is the payment after the interest-only period?
The increase depends on the IO period length and total term. On a $400,000 loan at 6.5% with a 10-year IO period, the IO payment is about $2,167/mo. After the IO period, the amortized payment jumps to roughly $3,160/mo for the remaining 20 years, an increase of nearly 46%.
Do you build equity with an interest-only mortgage?
During the IO period, you do not build equity through payments since none of your payment goes toward principal. However, you can still gain equity if the property appreciates in value. You can also make optional principal payments during the IO period.