Interest-Only Loan Calculator: Payment During and After the Interest-Only Period

This calculator works out an interest-only loan: during the interest-only years you pay only the interest, and afterwards the full balance is repaid over the years that remain. Enter the amount, APR, the interest-only period and the total term.

Formula

Interest-only payment = P × APR ÷ 1200. Afterwards the full P is amortized over the remaining months m = (term − interest-only years) × 12: M = P × r ÷ (1 − (1 + r)^−m). Total interest = interest-only payment × interest-only months + M × m − P.

Worked Example

$300,000 at 7% APR, 10 years interest-only within a 30-year term.

1. Interest-only payment = 300,000 × 7 ÷ 1200 = $1,750.00
2. Remaining term = 20 years = 240 months; r = 7 ÷ 1200 = 0.00583333, so M = 300,000 × 0.00583333 ÷ (1 − 1.00583333⁻²⁴⁰) = $2,325.90
3. Total interest = 1,750.00 × 120 + 2,325.90 × 240 − 300,000 = $468,216.00

Assumptions

• The payment is rounded to the cent and totals use the rounded payment; a lender’s final payment can differ by a few cents.
• Fixed interest rate for the whole term; payments of equal size at the end of each month.
• Interest compounds monthly at APR ÷ 12.
• No fees, taxes or insurance unless the calculator has a field for them.
• The rate is the same during and after the interest-only period.

How to read the result

The balance does not fall at all during the interest-only years, so the later payment is higher than on a loan amortized from day one, and the total interest is higher too.

Limits and common mistakes

• The interest-only period must be shorter than the total term.
• Many interest-only loans have a variable rate; this calculator keeps it fixed.

Frequently Asked Questions

What is the interest-only payment on $300,000 at 7%?

$1,750 a month.

How much does the payment rise afterwards?

In this example to about $2,325.90 for the last 20 years.

Does an interest-only loan cost more in total?

Yes, at the same rate it does, because the principal is outstanding for longer.

in p | Loan amount | $ | 300000 | 1 | 100000000
in apr | Interest rate (APR) | % | 7 | 0.01 | 100
in io | Interest-only period | years | 10 | 0.0833 | 49
in yrs | Total loan term | years | 30 | 1 | 50
out iop | Interest-only payment | $ | p * apr / 1200 | 2
out amp | Payment after the interest-only period | $ | round(p * (apr / 1200) / (1 - (1 + apr / 1200) ^ -((yrs - io) * 12)), 2) + 0 * sqrt(yrs - io - 1 / 12) | 2
out tint | Total interest over the term | $ | iop * io * 12 + amp * (yrs - io) * 12 - p | 2