Interest-Only Payment Amortization Schedule Calculator

This calculator estimates a monthly interest-only payment and builds an amortization schedule showing how the balance changes during the interest-only period and after principal repayment begins. Enter the loan amount, annual interest rate, interest-only term, and total loan term to see the payment, remaining balance, and estimated schedule.

Formula

During the interest-only period, the monthly payment is the loan principal multiplied by the monthly interest rate: IO payment = P × r. The monthly rate is r = APR ÷ 1,200, converting an annual percentage rate to a monthly decimal rate. With no principal reduction during this period, the balance at its end remains B = P.

For the remaining months, the estimated level payment that repays the balance is PI payment = B × r ÷ [1 − (1 + r)⁻ⁿ]. Here, P is the original loan amount in dollars, APR is the annual percentage rate in percent, r is the monthly rate, and n is the number of principal-and-interest payment months. The total-interest estimate is interest-only payments plus later payments, minus the principal repaid: (IO payment × interest-only months) + (PI payment × n) − B. Payments are rounded to cents before estimating totals.

The calculator assumes the interest-only period is shorter than the total term. If the inputs do not satisfy that condition, the later payment cannot be calculated. The term inputs are years; multiplying the difference by 12 converts the remaining term to months.

Worked Example

Using the defaults—$200,000 principal, 6% APR, a 5-year interest-only period, and a 30-year total term—the monthly rate is 6 ÷ 1,200 = 0.005, or 0.5%.

1. Interest-only payment: $200,000 × 0.005 = $1,000.00 per month.
2. Balance when principal payments begin: no principal was paid in this simplified period, so it remains $200,000.
3. Remaining payment months: (30 − 5) × 12 = 300 months.
4. Later monthly payment: $200,000 × 0.005 ÷ [1 − (1.005)⁻³⁰⁰] = approximately $1,288.60.
5. Estimated interest: ($1,000.00 × 60) + ($1,288.60 × 300) − $200,000 = $246,580.00.

These figures illustrate the payment change: the estimated monthly payment rises from $1,000 during the interest-only period to about $1,288.60 afterward, because the later payment must cover both interest and principal. Actual statements may differ because of rounding, payment dates, rate adjustments, and contract terms.

Assumptions

• The APR is fixed for the full term and is applied as a monthly rate equal to APR divided by 12.
• Payments are monthly, made at the end of each period; the interest-only payment covers that period’s interest.
• The calculator assumes monthly compounding and that principal does not decrease during the interest-only period.
• Fees, taxes, insurance, mortgage insurance, escrow, rate changes, skipped payments, and extra principal payments are not included.

How to Read an Interest-Only Schedule

An amortization schedule lays out each payment period, how much goes to interest, how much goes to principal, and the balance afterward. In the interest-only rows, the principal portion is zero under this model, so the balance stays unchanged. Once amortization begins, each level payment is divided between interest and principal. Early in that phase, interest represents a larger share; as the balance declines, the interest portion generally falls and more of the payment reduces principal.

The calculator provides summary figures rather than a dated row for every payment. To make a full schedule, start with the balance and for each month calculate interest as beginning balance × monthly rate; subtract that interest from the payment to find principal paid; then subtract principal paid from the beginning balance. For interest-only months, set principal paid to zero. For later months, use the principal-and-interest payment. A final payment may need adjustment for rounding.

Why the Payment Changes

Interest-only means the scheduled payment covers interest but does not reduce the amount borrowed. It does not mean the lender waives interest or that the loan is being paid down. When the interest-only phase ends, the unchanged balance must be repaid over the shorter remaining term. That combination can create a substantial payment increase, often called payment shock.

For example, the worked example leaves 25 years to repay the full $200,000 after five interest-only years. If the total term were shorter while the interest-only period stayed the same, the remaining repayment period would also be shorter and the calculated later payment higher. If the contract instead has a final balloon payment or a changing rate, this calculator does not represent those features.

Schedule Limits and Common Mistakes

• Confusing payment with principal reduction: an interest-only payment is not a principal payment in this model; the balance stays at the original amount.
• Entering an interest-only term equal to or longer than the total term: there would be no positive repayment period for the modeled later payment.
• Mixing annual and monthly rates: APR is entered as a percentage such as 6, and the formula divides by 1,200. Do not enter 0.06 for 6%.
• Assuming the quoted payment is the whole housing or borrowing cost: taxes, insurance, fees, and other contract charges are excluded.
• Ignoring variable rates or contract details: a rate adjustment, balloon amount, payment cap, or different compounding method can produce a different schedule.

Because the calculation is a fixed-rate mathematical estimate, use the loan documents to identify the actual interest-only dates, payment timing, rate structure, and fees. Get the actual rate and charges from the lender; the sample inputs are only illustrative.

Frequently Asked Questions

Does an interest-only payment reduce the loan balance?
Not under the standard interest-only arrangement modeled here. The payment covers interest, leaving the principal balance unchanged unless a separate principal payment is made.

What happens when the interest-only period ends?
The loan may switch to scheduled principal-and-interest payments, which repay the remaining balance over the time left in the term. The contract may specify a different structure, so check its payment terms.

Can the monthly payment stay the same after the interest-only period?
It can only do so if the loan’s terms or payment arrangement support that result. With a fixed rate and ordinary amortization, the later payment is generally higher because it includes principal repayment.

Does an interest-only schedule show a balloon payment?
No. This calculator assumes the balance is repaid through level payments during the remaining term. A balloon payment or other final lump sum requires a separate calculation based on the contract.

Why might my lender’s schedule differ from this estimate?
Differences can result from the actual APR, payment dates, rounding, variable rates, fees, payment timing, or contract-specific rules not included here. Compare the calculator assumptions with the lender’s disclosed schedule.

This result is an estimate for educational use, and the lender’s disclosure gives the exact figures.

Related

• Amortization With Extra Monthly Payments
• Amortization Table Using Payment Amount?
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in p | Loan amount | $ | 200000 | 1 | 100000000
in apr | Interest rate (APR) | % | 6 | 0.01 | 100
in io | Interest-only period | years | 5 | 0.0833 | 49.9167
in yrs | Total loan term | years | 30 | 0.1667 | 50
out pmt | Monthly interest-only payment | $ | p * (apr / 1200) | 2
out bal | Balance when principal payments begin | $ | p
out n | Principal-and-interest payment months | months | (yrs - io) * 12 | 0
out pi | Estimated monthly principal-and-interest payment | $ | bal * (apr / 1200) / (1 - (1 + apr / 1200) ^ -n) + 0 * sqrt(yrs - io) | 2
out int | Estimated total interest over full term | $ | pmt * io * 12 + pi * n - bal | 2