How much is my interest-only payment — and what happens after? This calculator shows your low monthly payment during the interest-only period, the higher amortized payment that follows, and the total interest you will pay.
Enter your loan amount, annual interest rate, interest-only period, and total loan term. Press Calculate Payment to see your monthly payment during the interest-only period, your payment once amortization begins, the total interest paid during the IO period, and the total cost of the loan over its full term.
Loan amount (P): $300,000
Annual interest rate (r): 6%
Interest-only period: 5 years
Total loan term: 30 years
Monthly interest rate: 6% ÷ 12 = 0.5%
Interest-only payment = $300,000 × 0.005 = $1,500.00 per month
After 5 years, the remaining $300,000 balance amortizes over 25 years, and the payment jumps to $1,932.71 per month.
Total interest during the IO period = $1,500 × 60 months = $90,000
Result: $1,500.00 / $1,932.71 / $90,000
Notice that after five years of $1,500 payments you still owe the full $300,000. Over the interest-only period you paid $90,000 in interest and reduced your principal by $0. This is exactly why the payment jumps so sharply once amortization begins.
Total interest during the IO period = IO payment × IO years × 12. Total cost of the loan = all interest-only payments plus all amortizing payments.
Try the worked example in the Examples tab: $300,000 at 6% for 30 years with a 5-year IO period produces a $1,500.00 interest-only payment, a $1,932.71 amortized payment afterward, and $90,000 of interest during the IO period.
If the interest-only period is equal to or longer than the total loan term (n ≤ 0), the calculator reports that your loan is interest-only for its full term and that the full principal remains due at the end.
An interest-only loan lets you pay only the interest on the loan for a set period — commonly 3, 5, or 10 years — instead of paying both principal and interest. Because none of your payment goes toward the principal, your monthly payment is noticeably lower during that period, but your loan balance does not decrease at all.
Once the interest-only period ends, the loan typically converts to a fully amortizing loan. The remaining principal is spread across the remaining term, which means your payment rises — often substantially. For a 30-year loan with a 5-year interest-only period, the principal that would normally be paid over 30 years must instead be repaid over 25 years, on top of interest.
Choosing between an interest-only loan and a traditional amortizing loan comes down to a trade-off between a lower payment now and building equity over time.
Lower monthly payment during the IO period — ideal for buyers who expect higher income later or plan to sell before the period ends.
No principal reduction — you build zero equity through payments during the IO period.
Higher payment later — amortization over a shorter remaining term means a significant payment jump.
Higher monthly payment from day one, but each payment reduces the principal balance.
Steady equity building — you own more of the home with every payment.
Predictable payments — no payment shock at a future date, assuming a fixed rate.
| Comparison | Interest-Only Loan | Traditional Loan |
|---|---|---|
| Monthly payment (first 5 years) | $1,500.00 (interest only) | $1,798.65 (principal + interest) |
| Balance after 5 years | $300,000 (unchanged) | $278,895 (reduced) |
| Payment after year 5 | $1,932.71 (jumps up) | $1,798.65 (steady) |
| Total interest over 30 years | Higher (interest paid on full balance throughout) | Lower |
Figures shown for a $300,000 loan at 6% APR with a 5-year interest-only period versus a standard 30-year fixed loan.
Payment shock is the sudden increase in your monthly payment when the interest-only period ends. In the example above, the payment rises from $1,500.00 to $1,932.71 — a jump of more than $430 per month. If rates are adjustable, the shock can be even larger.
Put the money you save during the IO period into savings or investments so you are ready for the higher payment later.
If you plan to keep the loan long-term, refinancing into a traditional loan before the IO period ends can lock in a predictable payment.
Many IO borrowers plan to sell or pay down the balance before amortization kicks in. If that plan falls through, the payment jump still arrives.
Use the calculator above to model your own numbers, then build a plan for the day your payment increases.
Interest-only features appear on several types of loans, each with its own structure and risk profile:
Home loans with a 3- to 10-year IO period followed by amortization. Popular with buyers who plan to refinance, sell, or expect rising income.
HELOCs often have a draw period with interest-only payments, followed by a repayment period in which principal must be paid down.
Less common and risky: cars depreciate quickly, so an interest-only period can leave you owing more than the vehicle is worth.
Businesses and investors often use IO periods to manage cash flow, relying on property appreciation or business income to cover later payments.
Whatever the loan type, the math is the same: interest-only payments do not reduce the balance, and the eventual amortizing payment will be higher than a traditional loan's payment would have been from day one.
During the interest-only period your balance does NOT decrease — you are paying interest only, and every dollar of principal remains owed. When the period ends, your payment will jump substantially because the full principal must be repaid over a shorter remaining term.
Interest-only loans carry significant risk of payment shock and negative equity. This calculator is for educational purposes only and does not constitute financial advice. Consult a qualified financial or mortgage professional before making borrowing decisions.