🏠 Interest-Only Loan Calculator
By ToolNimba Finance Team · Reviewed by ToolNimba Editorial Review, personal finance content · Updated 2026-06-19
This calculator gives an estimate only. It covers the interest-only period and does not include the much higher payments that begin once principal repayment starts, nor fees, insurance, taxes or rate changes on a variable loan. The result is not financial advice. Confirm the exact figures in your loan agreement and speak to a qualified adviser before borrowing.
During the interest-only period you pay interest only, so the principal stays unchanged and the full balance is still owed when the period ends.
An interest-only loan lets you pay only the interest for a set period, so your monthly payment is lower but the amount you borrowed (the principal) does not go down. This calculator works out the interest-only monthly payment, the total interest you will pay during that period, and the balance you will still owe at the end. Enter the loan amount, the annual rate (APR) and the length of the interest-only term to see the numbers instantly.
What is the Interest Only Loan Calculator?
An interest-only loan is one where, for an agreed period, your scheduled payment covers only the interest that accrues each month and none of the principal. The monthly payment is simply the outstanding balance multiplied by the monthly interest rate, which is the APR divided by 12 and by 100. For a 300,000 loan at 6% APR, the monthly rate is 0.005, so the payment is 300,000 x 0.005 = 1,500 every month, and the balance stays at 300,000 the whole time.
The appeal is a smaller payment. Because none of the payment chips away at the balance, an interest-only payment is meaningfully lower than the fully amortizing payment on the same loan. Borrowers use this to free up cash flow in the early years, to buy more property than they otherwise could, or to match payments to irregular income. The trade-off is that you make no progress on the debt: every dollar of the original principal is still owed when the interest-only period ends.
What happens next is the part people underestimate. When the interest-only term finishes, the loan usually converts to a fully amortizing schedule over the remaining years, which means a sharp jump in the monthly payment because the same balance must now be repaid over a shorter time. Some interest-only loans instead require a lump-sum (balloon) repayment of the entire principal at the end. Either way, you should plan for the higher cost or the lump sum well before the interest-only period runs out.
When to use it
- Estimating the lower monthly payment during the interest-only period of a mortgage or property loan.
- Seeing how much total interest you pay over an interest-only term without reducing the balance at all.
- Comparing the cash-flow relief of interest-only against the fact that the full principal is still owed at the end.
- Planning ahead for the payment jump or balloon repayment that follows the interest-only period.
How to use the Interest Only Loan Calculator
- Enter the loan amount (the principal you are borrowing).
- Enter the annual interest rate (APR) offered by the lender.
- Enter the interest-only term in years or months.
- Read off the interest-only monthly payment, the total interest over the period, and the balance still owed at the end.
Formula & method
Worked examples
You borrow 300,000 at 6% APR with a 5-year (60-month) interest-only period.
- Monthly rate = 6 ÷ 12 ÷ 100 = 0.005
- Monthly payment = 300,000 x 0.005 = 1,500
- Total interest over the period = 1,500 x 60 = 90,000
- Balance still owed at the end = 300,000 (unchanged)
Result: Interest-only payment 1,500/mo, total interest 90,000, balance owed 300,000
You borrow 150,000 at 4.8% APR with a 3-year (36-month) interest-only period.
- Monthly rate = 4.8 ÷ 12 ÷ 100 = 0.004
- Monthly payment = 150,000 x 0.004 = 600
- Total interest over the period = 600 x 36 = 21,600
- Balance still owed at the end = 150,000 (unchanged)
Result: Interest-only payment 600/mo, total interest 21,600, balance owed 150,000
Interest-only monthly payment per 100,000 borrowed, by APR
| APR | Monthly rate | Payment per 100,000 |
|---|---|---|
| 3% | 0.0025 | 250 |
| 4% | 0.003333 | 333.33 |
| 5% | 0.004167 | 416.67 |
| 6% | 0.005 | 500 |
| 7% | 0.005833 | 583.33 |
| 8% | 0.006667 | 666.67 |
Common mistakes to avoid
- Thinking the balance goes down. During the interest-only period none of your payment touches the principal, so the balance is exactly the same on the last day as on the first. You owe the full original amount when the period ends.
- Ignoring the payment jump after the IO period. When the interest-only term ends, the loan typically converts to a fully amortizing schedule over the remaining years. Because the same balance is now repaid over less time, the monthly payment can rise sharply.
- Overlooking a balloon repayment. Some interest-only loans require the entire principal to be repaid as a single lump sum at the end of the term. If you cannot pay or refinance it, you may be forced to sell or default.
- Comparing only the headline monthly payment. The low interest-only payment looks cheaper than an amortizing loan, but you build no equity and pay interest on the full balance the whole time, so the long-run cost can be higher.
Glossary
- Interest-only period
- The span during which your payment covers only interest, so the principal stays unchanged.
- Principal
- The original amount borrowed. On an interest-only loan it does not reduce while you pay interest only.
- APR
- Annual percentage rate, the yearly interest rate used to work out the monthly rate (APR ÷ 12 ÷ 100).
- Amortizing payment
- A payment that repays both interest and principal so the balance falls to zero over the loan term.
- Balloon payment
- A single large repayment of the remaining principal due at the end of some interest-only loans.
Frequently asked questions
How is an interest-only payment calculated?
The monthly payment is the outstanding balance multiplied by the monthly interest rate, where the monthly rate is the APR divided by 12 and by 100. For example, 300,000 at 6% APR is 300,000 x (6 ÷ 12 ÷ 100) = 300,000 x 0.005 = 1,500 per month. None of this reduces the principal.
Does the loan balance go down during the interest-only period?
No. While you pay interest only, every payment covers just the interest for that month, so the principal stays exactly the same. You still owe the full original amount when the interest-only period ends.
What happens when the interest-only period ends?
The loan usually switches to a fully amortizing schedule, repaying the balance plus interest over the remaining years, which means a higher monthly payment. Some loans instead require a balloon repayment of the whole principal at the end. Plan for whichever applies before the period runs out.
Why would anyone choose an interest-only loan?
The lower payment frees up cash in the early years. Borrowers use it to improve short-term cash flow, to afford a larger purchase, or to match payments to irregular income, accepting that they make no progress on the debt during that time.
Is an interest-only loan cheaper overall?
Usually not. Because you pay interest on the full balance for the whole interest-only period and build no equity, the total cost over the life of the loan is often higher than an equivalent amortizing loan, even though the monthly payment is lower at first.
Can I make extra payments toward the principal?
Many interest-only loans let you pay extra toward the principal voluntarily, which lowers the balance and the interest you owe from then on. Check your agreement for any prepayment limits or penalties before doing so.
Sources
- Interest-Only Mortgage , Investopedia
- What is an interest-only loan? , U.S. Consumer Financial Protection Bureau