Amortization Schedule: Interest-Only Loan Calculator

An interest-only amortization schedule shows the interest due during each payment period and, if the loan later begins principal repayment, how the remaining balance is repaid. Enter the loan amount, annual APR, and term to estimate a level monthly payment and total interest for a standard fully amortizing loan; this calculator does not model an interest-only period.

Formula

This calculator estimates the fixed monthly payment on a fully amortizing loan, then subtracts the original principal from all scheduled payments to estimate total interest. The payment formula is:

PMT = P × r ÷ [1 − (1 + r)−n]

• P is the starting loan principal, in dollars.
• APR is the annual percentage rate entered as a percentage.
• r is the monthly rate, calculated as APR ÷ 1,200.
• n is the number of monthly payments, calculated as years × 12.
• PMT is the monthly payment, in dollars, rounded to cents.

Total interest is PMT × n − P. Because the monthly payment is rounded to cents before this total is calculated, the estimate uses that rounded payment for every month.

Worked Example

Using the calculator’s defaults: principal P = $20,000, APR = 8%, and term = 5 years.

1. Convert the APR to a monthly rate: r = 8 ÷ 1,200 = 0.0066667.
2. Convert the term to payments: n = 5 × 12 = 60.
3. Substitute into the payment formula: PMT = 20,000 × 0.0066667 ÷ [1 − (1.0066667)−60].
4. Round the monthly payment to cents: $405.53.
5. Calculate interest using the rounded payment: $405.53 × 60 − $20,000 = $4,331.80.

So the calculator returns an estimated monthly payment of $405.53 and total interest of $4,331.80. These values describe a fully amortizing loan, not an interest-only payment arrangement.

Assumptions

• The APR and payment amount stay fixed for the full term.
• Payments are monthly and made at the end of each period.
• Interest accrues monthly at APR ÷ 12.
• Fees, taxes, insurance, mortgage insurance, and escrow are not included.
• The estimate does not model an interest-only phase, a changing rate, missed payments, or extra principal payments.

What an Interest-Only Amortization Schedule Shows

“Amortization” means reducing a debt balance through payments over time. In a typical fully amortizing loan, each scheduled payment covers interest accrued for the period and pays down some principal. Early payments generally contain a larger interest share; later payments contain a larger principal share, assuming the rate and payment schedule stay unchanged.

With an interest-only arrangement, a payment during the specified interest-only period covers interest but does not reduce principal. The balance therefore remains about the same during that period, unless the borrower makes additional principal payments or the contract applies other adjustments. When the interest-only period ends, the remaining balance may need to be repaid over the remaining term, potentially producing a higher payment. The contract determines the actual timing and calculation.

How to Read the Schedule and Compare the Payments

A detailed schedule typically has one row per payment period, with the payment split into interest and principal and a resulting balance shown afterward. For a standard fixed-rate amortizing loan, the recurring calculation is:

• Period interest = starting balance × periodic interest rate.
• Principal paid = payment − period interest.
• Ending balance = starting balance − principal paid.

For example, at an 8% APR, the first month’s interest on a $20,000 balance is about $133.33 (using 8% ÷ 12). The calculator’s $405.53 payment would leave about $272.20 to reduce principal in that month. The next period’s interest is then based on the lower balance. Figures in a lender’s schedule can differ slightly because of rounding conventions, payment dates, and the contract’s interest-accrual method.

An interest-only payment for the same balance and monthly rate would initially be about $133.33 if interest is calculated monthly at APR ÷ 12. That lower figure does not mean the debt is being paid off: the principal remains due. It is not a payment output from this calculator.

When the Estimate Is Useful—and Its Limits

Use this calculator to understand the basic payment and interest arithmetic of a fixed-rate, fully amortizing loan, or to see how principal, APR, and duration enter the formula. Enter the loan’s actual principal, APR, and term from its disclosure or loan documents; the default values are only an example, not a representation of an available offer.

For an actual interest-only loan, check the documents for the interest-only period, payment frequency, rate changes, how interest is accrued, and what happens when that period ends. To estimate a payment for a particular period, the relevant balance and applicable periodic rate are needed. To estimate later payments, the remaining balance, remaining term, and post-period rate must also be known. This calculator lacks those inputs and cannot produce a schedule for that structure.

A frequent misconception is that making only interest payments gradually pays off the loan. It does not reduce principal unless the payment exceeds the interest due and the excess is credited to principal. Another important distinction: APR may include costs beyond the stated interest rate, while this simplified formula treats the entered APR as the rate used to accrue interest. Review the lender’s payment schedule for contract-specific figures. Do not treat this estimate as financial advice; it is an estimate, and the lender’s disclosure gives the exact figures.

Frequently Asked Questions

Does an amortization schedule include interest only?
An amortization schedule can show an interest-only phase, but the balance will not decline from payments that cover only interest. This calculator instead estimates payments on a fully amortizing loan.

How do I calculate an interest-only monthly payment?
For a simple monthly calculation, multiply the balance by the annual rate expressed as a decimal and divide by 12. For instance, $20,000 at 8% gives $20,000 × 0.08 ÷ 12 = $133.33. The loan’s documents determine the actual accrual method and payment.

Does an interest-only payment reduce the loan balance?
No, not when it exactly covers the interest due. The principal is reduced only if an amount is applied to principal, such as an extra payment, subject to the loan terms.

What happens after the interest-only period ends?
It depends on the agreement. Payments may be recalculated to repay the remaining principal over the time left, the rate may change, or a different repayment structure may apply. Check the contract rather than assuming one outcome.

Why is my lender’s schedule different from this estimate?
The calculation uses a fixed APR, monthly periods, end-of-period payments, and cent-rounded payments. A lender’s schedule may use different accrual conventions, dates, rounding, fees, rate changes, or contract terms.

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in p | Loan amount | $ | 20000 | 1 | 100000000
in apr | Interest rate (APR) | % | 8 | 0.01 | 100
in yrs | Loan term | years | 5 | 0.0833 | 50
out pmt | Monthly payment | $ | p * (apr / 1200) / (1 - (1 + apr / 1200) ^ -(yrs * 12)) | 2
out int | Total interest | $ | pmt * yrs * 12 - p | 2