Interest Only Loan Calculator
The Interest Only Loan Calculator helps you estimate your monthly payments for an interest-only loan based on the loan amount, interest rate, and duration of the interest-only period. By entering these details, you can determine how much you will pay each month during the interest-only phase, allowing you to make informed decisions about your financing options. This tool empowers you to understand your financial obligations and plan your budget effectively. Start calculating your interest-only loan payments today!
Monthly Interest Payment
$1,666.67
Total Interest Paid During Interest Only Period
$100,000.00
How to Use This Calculator
- 1
Enter Loan Amount
Input the total principal amount of the interest-only loan.
- 2
Set Interest Rate
Enter the annual interest rate as a percentage.
- 3
Specify Interest-Only Period
Enter the number of years during which you will make interest-only payments.
- 4
Calculate
Click Calculate to see your monthly interest payment and total interest paid during the interest-only period.
Example Calculation
A borrower takes a $400,000 mortgage with a 6.5% interest rate and a 7-year interest-only period before full amortization begins.
Loan Amount
$400,000
Annual Interest Rate
6.5%
Interest Only Period
7 years
Result
Monthly interest payment of $2,166.67 and total interest paid during the interest-only period of $182,000.
Tips
Plan for Payment Shock
When the interest-only period ends, your payments will increase significantly as you begin repaying principal. Budget accordingly.
Use the Savings Wisely
The lower initial payments free up cash. Consider investing the difference or building an emergency fund.
Consider Refinancing
Many borrowers refinance or sell the property before the interest-only period ends. Have a clear exit strategy.
Frequently Asked Questions
What is an interest-only loan?
An interest-only loan allows you to pay only the interest on the borrowed amount for a set period, typically 5 to 10 years. During this time, your monthly payments are lower because you are not reducing the principal. After the interest-only period, payments increase as you begin repaying principal.
How is the monthly interest payment calculated?
The monthly interest payment is calculated as: (Loan Amount x Annual Interest Rate) / 12. For example, on a $300,000 loan at 6%, the monthly interest payment is ($300,000 x 0.06) / 12 = $1,500 per month.
Who benefits most from an interest-only loan?
Interest-only loans suit borrowers who expect significant income increases, plan to sell or refinance before the interest-only period ends, or need maximum cash flow flexibility in the short term. Real estate investors and self-employed professionals often use them strategically.
What happens when the interest-only period ends?
When the interest-only period ends, the loan converts to a fully amortizing loan for the remaining term. Your monthly payment will increase substantially because you now need to pay both principal and interest over a shorter remaining period.