Interest-Only Loan Calculator
Calculate your payments during the interest-only and amortizing periods.
Loan Details
Your Estimated Payments
Interest-Only Payment
$0.00
Principal & Interest Payment
$0.00
Total Interest Paid
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Understanding Interest-Only Loans
What is an Interest-Only Loan?
An interest-only loan is a type of mortgage where the borrower is only required to pay the interest on the loan for a specific period of time. During this “interest-only period,” the principal balance of the loan does not decrease. After the interest-only period ends, the loan converts to a standard amortizing loan, and the monthly payments increase significantly to cover both principal and interest. Our Interest-Only Loan Calculator helps you see both of these payment amounts clearly.
Pros and Cons of Interest-Only Loans
These loans are specialized products and are not right for everyone. It’s important to understand the trade-offs.
- Pro: Lower Initial Payments. The main advantage is a significantly lower monthly payment during the interest-only period, which can free up cash flow for other investments or expenses.
- Con: No Equity Growth. Since you are not paying down the principal, you do not build equity in your home through your payments during the initial period. Any equity gained would come from market appreciation.
- Con: Payment Shock. When the interest-only period ends, the monthly payment can increase dramatically. Our Interest-Only Loan Calculator shows this jump, which can be a shock if you are not prepared for it.
- Con: Higher Total Interest. Over the life of the loan, you will almost always pay more in total interest compared to a standard mortgage.
Who Should Consider an Interest-Only Loan?
Interest-only loans are typically best suited for financially savvy borrowers in specific situations, such as:
- Real Estate Investors: Investors who plan to sell a property after a short period can benefit from the lower payments, maximizing their cash flow.
- High Earners with Variable Income: Individuals with large but irregular bonuses or commissions may use the lower payment to manage cash flow and plan to make large principal payments when they receive income.