Interest-Only Mortgage Calculator
Compare interest-only vs. principal-and-interest payments and see the total cost difference.
Compare interest-only vs. principal-and-interest payments and see the total cost difference.
During the interest-only period, your payment covers only the interest charge — no principal is paid down. The full loan balance remains when the amortizing period begins. At that point, the loan must be fully repaid over the shortened remaining term, causing a significant payment increase (payment shock).
I/O Payment = Loan Balance × (Rate / 12) | After Reset: Payment = Balance × [r(1+r)^n] / [(1+r)^n − 1] | where n = remaining monthsInvestors sometimes use I/O loans to maximize cash flow during a holding period, banking on property appreciation for returns. If the property appreciates, the equity gain offsets the higher total interest cost.
A $400,000 I/O loan at 7% jumps from $2,333/mo to $3,103/mo after a 10-year I/O period (20-year payoff). Borrowers must be prepared for this increase or plan to refinance before the reset.
I/O payment is strictly interest: Balance × (rate/12). Amortizing payment is standard P&I on the same original balance over remaining term. Total interest includes both periods.