Loan Refinance Interest-Only Payment Calculator

This calculator estimates the monthly interest-only payment on a refinanced loan from the new loan amount and its annual APR. Enter those figures to see the payment, plus the interest paid over a chosen interest-only period; it does not calculate principal repayment.

Formula

The monthly interest-only payment is the loan amount multiplied by the annual APR converted to a monthly rate:

Payment = P × (APR ÷ 1200)

• P is the refinanced principal, in dollars.
• APR is the entered annual percentage rate, expressed as a percentage number (for example, 8 for 8%).
• APR ÷ 1200 converts the annual percentage to a monthly decimal rate by dividing by 100 and then by 12.

The second output estimates interest paid over the selected period: monthly payment × number of months. It assumes the principal stays unchanged and the APR stays fixed throughout that period. The calculator rounds the displayed monthly payment to cents; the interest total uses the unrounded formula result, so rounding the monthly payment manually and multiplying may differ by a few cents.

Worked Example

Using the calculator’s default values—$20,000, an 8% APR, and a five-year interest-only period:

1. Convert the APR to a monthly rate: 8 ÷ 1200 = 0.0066667.
2. Calculate monthly interest: $20,000 × 0.0066667 = $133.3333, displayed as $133.33 per month.
3. Convert the period to months: 5 × 12 = 60 months.
4. Calculate interest for the period from the unrounded payment: $133.3333 × 60 = $8,000.00.

Assumptions

• The rate is fixed during the interest-only period.
• Payments are monthly and made at the end of each monthly period.
• Interest accrues monthly using APR divided by 12; this is a simplified estimate of the loan’s rate convention.
• The principal balance does not decline during the interest-only period.
• Fees, closing costs, taxes, insurance, escrow, and any later principal payments are not included.

What an Interest-Only Refinance Means

Refinancing replaces an existing loan with a new one. An interest-only refinance has a period during which the scheduled payment covers interest but does not pay down the principal. The calculator estimates that interest-only payment, not the payment for a standard fully amortizing loan.

“Interest-only” does not mean the balance is forgiven or frozen permanently. If no principal is paid, the amount owed generally remains unchanged, subject to the loan terms and how interest is calculated. When the interest-only period ends, the loan may require payments that include both principal and interest, or the contract may set out another repayment arrangement. The resulting payment can be substantially different, so the schedule and later payment terms matter as much as the initial payment.

This calculation is useful for understanding one part of a proposed loan’s cash flow. It cannot by itself show whether refinancing reduces total borrowing costs. A complete comparison also needs the old loan’s remaining balance and schedule, new-loan fees, the new rate and term, and the expected time the borrower will keep the loan. Get the actual figures and terms from the lender’s written disclosure.

How to Use the Estimate

• Enter the new principal. Use the amount being borrowed in the refinance, not necessarily the original loan amount. If costs are added to the balance, confirm whether the lender includes them in the quoted principal.
• Enter the quoted APR. Use the rate applicable to the loan, not a payment amount or a monthly percentage. The calculator does not look up rates or estimate eligibility.
• Set the interest-only period. Enter the number of years during which the modeled payment is interest-only. Confirm the actual duration and payment schedule in the loan documents.
• Review both outputs. The first is the estimated monthly interest payment. The second is interest over the selected period under the assumptions above; it is not the balance due at the end.

For example, at the same APR and period, doubling the principal doubles the calculated payment and interest total. A lower APR reduces the interest-only payment for the same balance, while a longer interest-only period increases the period’s cumulative interest without reducing principal in this model.

Costs, Trade-Offs, and Limits

A small initial payment can be misleading if it is viewed without the later repayment schedule. Since principal is not reduced by these modeled payments, it must still be repaid under the loan’s terms. Ask for the payment amount after the interest-only period, how long repayment runs, whether the rate can change, and what happens if a scheduled payment is missed or the loan is repaid early. Those details are contract-specific and are not represented in this calculator.

Refinancing can also involve costs that the simple interest estimate omits. Depending on the offer, charges may be paid upfront or included in the new balance; either treatment changes the overall cost or amount borrowed. The calculator does not determine a break-even point or compare the total cost of two loans. To make that comparison, use complete figures for both loans and account for how long each is expected to remain outstanding.

APR and the rate used to accrue monthly interest are not always interchangeable in every loan’s documentation. This tool uses APR ÷ 12 as a simplified monthly-rate assumption, as stated above. If the agreement specifies a different rate basis, variable-rate adjustments, daily interest, or payment timing, its figures can differ. Do not treat the estimate as a payoff quote or exact lender billing amount.

Frequently Asked Questions

Does refinancing an interest-only loan pay down the principal?
No. This calculator models payments that cover interest only, so the principal remains unchanged. A refinance may have different terms, but only the signed schedule shows how principal is repaid.

Is an interest-only payment the same as a regular monthly loan payment?
No. A regular amortizing payment generally includes principal and interest. An interest-only payment in this model covers only monthly interest, leaving principal to be paid later under the loan terms.

What happens when the interest-only period ends?
The next payment and repayment structure depend on the contract. Payments may begin covering principal as well as interest, and the amount can change. Check the stated schedule rather than assuming the calculator’s payment continues.

Does the interest total include refinance fees?
No. It estimates interest only from the entered principal, APR, and period. Fees, taxes, insurance, and other charges are excluded.

Can I use this to decide whether refinancing saves money?
Not by itself. It does not compare the existing loan with the new loan or include fees and later payments. A useful comparison needs the complete schedules and costs for both offers.

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

Related

• Loan Trial Balance Calculator and Reconciliation Guide
• Loan Charge-Off Journal Entry: Accounting Explained
• Loan Calculator With Credit Balance: Estimate Payments

in p | Refinance loan amount | $ | 20000 | 1 | 100000000
in apr | Interest rate (APR) | % | 8 | 0.01 | 100
in yrs | Interest-only period | years | 5 | 0.0833 | 50
out pmt | Monthly interest-only payment | $ | p * (apr / 1200) | 2
out int | Interest over period | $ | pmt * yrs * 12 | 2