Interest Only Mortgage Calculator
Calculate interest-only payments and future payment increases
Calculate Interest-Only Mortgage
Loan Details
Principal amount of the mortgage loan
Annual percentage rate (APR)
Duration of interest-only payments
How often you make payments
Total loan term for calculating post-interest-only payments
Interest-Only Mortgage Results
Interest-Only Period
Total Loan Costs
Important Notice
After the 10-year interest-only period, your payment will increase by $954.264 (81.8% increase). The principal balance of $350,000 will remain unchanged during the interest-only period.
Interest-Only Payment Schedule Preview
| Period | Payment | Principal | Interest | Balance | Phase |
|---|---|---|---|---|---|
| 1 | $1,166.667 | $0 | $1,166.667 | $350,000 | Interest-Only |
| 2 | $1,166.667 | $0 | $1,166.667 | $350,000 | Interest-Only |
| 3 | $1,166.667 | $0 | $1,166.667 | $350,000 | Interest-Only |
| 4 | $1,166.667 | $0 | $1,166.667 | $350,000 | Interest-Only |
| 5 | $1,166.667 | $0 | $1,166.667 | $350,000 | Interest-Only |
| 6 | $1,166.667 | $0 | $1,166.667 | $350,000 | Interest-Only |
Showing first 6 monthly payments of 120 interest-only payments
Example Calculation
Sample Loan
Loan Amount: $350,000
Interest Rate: 4.0%
Interest-Only Period: 10 years
Payment Frequency: Monthly
Interest-Only Phase
Monthly Payment: $1,167
Total Interest: $140,000
Principal Reduction: $0
After Interest-Only
New Monthly Payment: $1,687
Payment Increase: $520
Remaining Balance: $350,000
Pros & Cons
Advantages
- • Lower monthly payments initially
- • Better cash flow management
- • Tax deductible interest payments
- • Flexibility for investment opportunities
Disadvantages
- • No equity building during interest-only period
- • Higher payments after interest-only period
- • Risk of payment shock
- • Potential for negative equity
Interest-Only Options
Fixed Period
Interest-only for specific term, then amortizing
Balloon Payment
Interest-only with lump sum at end
ARM Interest-Only
Adjustable rate with interest-only option
Investment Property
Common for rental property financing
Understanding Interest-Only Mortgages
How Interest-Only Mortgages Work
Interest-only mortgages allow borrowers to pay only the interest portion of their loan for a specified period, typically 5-10 years. During this time, the principal balance remains unchanged, resulting in lower monthly payments but no equity building.
Payment Structure
- •Interest-Only Period: Pay only interest, no principal reduction
- •Amortization Period: Higher payments with principal + interest
- •Balloon Option: Lump sum payment at end of term
- •Refinancing: Option to refinance before rate adjustment
Payment Calculation
Interest-Only Payment = Loan Amount × (Annual Rate / Payment Frequency)
Example: $350,000 × (4% / 12) = $1,166.67/month
Payment remains constant during interest-only period
Who Should Consider
- Short-term ownership: Planning to sell before amortization
- Investment properties: Maximize cash flow from rentals
- Income growth expected: Anticipating higher future earnings
- Sophisticated investors: Using savings for other investments
Important: Interest-only mortgages carry higher risk due to payment increases and lack of equity building. Consider your long-term financial strategy carefully.