Calculate interest-only mortgage payments during the IO period and see the payment jump when amortization begins. Compare total cost to a standard mortgage.
An interest-only mortgage allows you to pay only the interest on your loan for an initial period, often 5 to 10 years. When that phase ends, the loan converts to a fully amortizing schedule and the required payment typically rises because the full balance must then be repaid over fewer remaining years.
This calculator models both phases so you can see the lower interest-only payment, the later amortizing payment, and the total interest cost over the assumed term. It also compares that structure with a standard fully amortizing mortgage so you can see the tradeoff between lower early payments and higher long-run cost.
The page is best used as a planning worksheet. Some interest-only loans are adjustable-rate or have lender-specific terms that can change the reset payment beyond the simplified fixed-rate example shown here.
Lower initial payments sound appealing, but the important question is what happens when the interest-only phase ends. This calculator surfaces the later payment reset and the extra interest cost so you can compare the structure against a traditional amortizing mortgage before relying on the early-payment savings.
Interest-Only Payment: M_IO = P × (r) where P = principal, r = annual rate / 12 / 100 Amortizing Payment (after IO period): M_amort = P × [r(1+r)^n_rem] / [(1+r)^n_rem − 1] where n_rem = remaining months (total term − IO period) Note: No principal is reduced during the IO period, so the full original balance is amortized over the shorter remaining term.
Result: IO: $2,813/mo → Amortizing: $3,896/mo
A $500,000 loan at 6.75% with a 10-year IO period has interest-only payments of $2,812.50/month. After 120 months, the full $500,000 must be amortized over the remaining 20 years, pushing the payment to $3,895.67/month — a 38% increase. Total interest over 30 years is $599,860, compared to $467,308 on a standard 30-year amortizing mortgage — an extra $132,552.
During the IO period your minimum payment covers only the interest that accrues each month. On a $500,000 loan at 6.75%, that is $2,812.50 per month — significantly less than the $3,243 you would pay on a standard 30-year amortizing mortgage. However, your principal balance remains at $500,000 the entire time. You are essentially renting the money without paying it back.
When the IO period ends, the full original balance must be paid off over the remaining term. If you had a 30-year loan with a 10-year IO period, you now have just 20 years to repay the entire $500,000. This compression drives the payment up significantly. The shorter the remaining term, the higher the amortizing payment.
Savvy borrowers use IO mortgages as a financial tool rather than a way to afford more house. Real estate investors often prefer IO loans because the lower payments maximize rental cash flow. High-income professionals with variable compensation may use IO during lean periods and aggressively prepay during bonus months.
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This worksheet assumes a fixed interest rate over the full term. During the selected interest-only period, the required payment covers only accrued interest and does not reduce principal. After that phase ends, the full original balance is amortized over the remaining months of the term.
The result is intended for scenario comparison. Many real interest-only loans are adjustable-rate, may have different recast mechanics, or may include lender-specific features that are not captured here.
An interest-only mortgage lets you pay only the interest charges for an initial period (typically 5-10 years), keeping your monthly payment low. You are not required to pay any principal during this phase. Once the IO period ends, the loan converts to a standard amortizing mortgage over the remaining term.
No. Since you are only paying interest, your loan balance stays the same throughout the IO period. If you want to reduce the balance, you must make voluntary extra payments toward principal.
The increase depends on the loan amount, rate, and remaining term. On a typical 30-year loan with a 10-year IO period, the amortizing payment can be 30-60% higher because the full balance must be repaid over only 20 years instead of 30.
Common use cases include short-horizon ownership plans or cash-flow-sensitive scenarios, but the key question is whether you can still handle the later fully amortizing payment if your plans change. This worksheet should be paired with lender disclosures and a conservative affordability review.
They carry more risk than standard mortgages because you are not building equity through payments, and the payment jump can be substantial. If property values decline, you could owe more than the home is worth. Always have a plan for when the IO period ends.
Most IO mortgages allow voluntary principal payments at any time. This is a smart strategy to gradually reduce your balance and soften the transition to the amortizing phase.
An IO mortgage almost always costs more in total interest because no principal is reduced during the IO phase. The longer the IO period and the higher the rate, the greater the difference. This calculator shows the exact comparison.
Yes, though they are less common than before 2008. They are primarily offered as jumbo loans, portfolio loans, or through credit unions. Qualification requirements are typically stricter, requiring higher credit scores and larger down payments.