Interest Only Mortgage Calculator

An interest-only mortgage lets you pay only the interest that accrues for a defined opening period — typically three, five, seven or ten years — after which the loan converts to fully amortizing for whatever term remains. The principal is not forgiven, deferred against some later benefit, or reduced by the payments you make. It simply sits there.

That last point deserves emphasis because the vocabulary hides it. A borrower ten years into a $400,000 interest-only mortgage owes $400,000. They have paid $280,000 to the lender. Their equity has grown only by whatever the local housing market handed them, and if the market did nothing, neither did their net worth.

The Consumer Financial Protection Bureau's explanation of what an interest-only loan is (consumerfinance.gov, read September 2026) makes the same point in fewer words: the payments do not reduce what you owe.

First, the reset payment. Take the original balance, the rate, and the number of months left after the interest-only period ends. On $400,000 at 7% with ten interest-only years inside a thirty-year term, the amortizing phase is 240 months, and the payment is $3,101.20. That is the number to test your budget against. The interest-only payment is not a payment you have to survive; it is a payment you get to enjoy temporarily.

Second, the lifetime cost. Ten years of $2,333.33 is $280,000 of pure interest, followed by an amortizing phase that costs another $344,287 in interest. Total: $624,287. The same $400,000 at the same 7% on an ordinary thirty-year mortgage costs $558,036. The interest-only structure adds $66,251, which is the price of having kept the balance intact for a decade.

All figures: $400,000 at 7.0%, computed with the amortization engine on this site. The monthly saving during the interest-only decade is $327.88 — smaller than most people expect, because at 7% an ordinary payment is already mostly interest. You are buying a $327.88 discount for ten years and paying $66,251 plus a permanent $439.99 payment increase for it.

Interest-only feels like it should slash the payment, and at low rates it does. At 3%, a $400,000 interest-only payment is $1,000 against an amortizing $1,686.42 — a 41% reduction. At 7%, the same structure cuts the payment by only 12%.

The reason is structural. An early amortizing payment is already almost entirely interest; the principal component is the only part interest-only removes, and that component is tiny at high rates. This produces an unfortunate irony: interest-only is most tempting when rates are high and payments feel unaffordable, and least effective in exactly that environment.

Interest-only has legitimate uses, and dismissing it outright is as unserious as selling it to everyone.

Genuinely irregular income. A borrower whose income arrives in large, unpredictable lumps — commissions, partnership distributions, seasonal business revenue — may prefer a low required payment plus voluntary principal payments when cash arrives. The structure gives flexibility; the discipline has to come from the borrower.

A short, certain holding period. If a property will be sold or refinanced on a known timetable well inside the interest-only window, the structure minimizes cash out the door while providing the same ownership.

A documented better use for the difference. If the $327.88 a month goes somewhere with a reliably higher return, the arbitrage can work. This argument is made far more often than it is executed.

Anyone whose reason for choosing interest-only is that the amortizing payment is unaffordable. That is not a cash-flow strategy; it is a countdown. The reset arrives on a date known at closing, the payment is higher than the one already out of reach, and the two escape routes — sell or refinance — both depend on conditions nobody can promise ten years out.

The 2006–2008 experience is the case study. Interest-only and payment-option loans were written on the assumption that borrowers would refinance before reset, using appreciation that had not happened yet. When prices fell, refinancing required equity that did not exist, and selling required a price the market would not pay. The structure did not cause the losses, but it removed every buffer that might have absorbed them.

Equity comes from two sources: principal you repay and appreciation the market grants. An interest-only mortgage switches off the first one entirely for the length of the interest-only period.

That matters most at exit. Selling a house costs roughly 6–9% of the sale price once commissions, transfer taxes and typical concessions are counted. A borrower with no amortized equity needs the market to have appreciated by that much just to walk away whole. On a standard thirty-year loan, the same borrower would have repaid $58,168 of principal over ten years — a cushion of about 14.5% of the original balance that exists regardless of what the market did.

The two get conflated and they fail differently. An interest-only mortgage recasts: the payment rises sharply at the end of the interest-only period, but the loan continues and eventually amortizes to zero. A balloon loan terminates: the entire remaining balance falls due on a single date, and you pay it, refinance it, or sell.

Some loans combine both, which produces the worst version — an interest-only period followed by a balloon, where nothing was ever repaid and the full original balance is due at once. If your term sheet mentions both an interest-only period and a maturity date shorter than the amortization term, read it very carefully. The CFPB's note on balloon payments and when they are allowed (consumerfinance.gov, read September 2026) is worth five minutes before signing.

• What is the exact dollar payment on the first month after the interest-only period ends, assuming I have paid no principal? Ask for the number in writing, not the formula.
• Is the rate fixed through the reset, or does it also adjust? A loan that recasts and re-rates in the same month can move the payment far more than the arithmetic above.
• Over how many months does the loan amortize after the reset — the remaining term, or a fresh full term?
• May I pay principal voluntarily during the interest-only period, and does doing so reduce the reset payment or only the term?
• Is there a prepayment penalty, and does it survive past the reset date?

The fourth question separates a usable loan from a trap. If voluntary principal payments reduce the eventual reset payment, the structure becomes genuinely flexible. If they only shorten the term, the reset lands at full force regardless of what you have done.

Used properly, an interest only mortgage calculator should tell you about the reset, and the calculator on this page shows both phases. Enter your loan amount, your rate, the full term of the loan (30 years for a 10-year interest-only inside a 30-year loan, not 20) and the number of interest-only years in the Interest-Only Years box. It returns the interest-only payment for those first years and then the principal-and-interest payment that starts the year after they end. That second figure is your reset payment, and it is the one to test your budget against.

On $400,000 at 7% with 10 interest-only years in a 30-year term, the calculator shows $2,333.33 for years one to ten and $3,101.20 from year eleven. Subtract the two to see the payment shock in dollars ($767.86), and look at the yearly schedule to watch the balance sit at $400,000 for ten years before it starts to fall. The total interest it reports, $624,287, includes the $280,000 paid during the interest-only years.

If the reset payment is comfortable, an interest-only loan is a cash-flow choice you can make with open eyes. If it is not, the calculator has told you the most important thing an interest-only calculator can tell anyone.

Every figure on this page was computed with the amortization engine that powers this site, not taken from a third-party table or an industry estimate. The inputs are stated inline so any of them can be reproduced: $400,000 principal, 7.0% annual rate, 360-month total term, 120-month interest-only period, monthly compounding, no fees or escrow. Changing the rate changes the conclusions materially, which is the argument for running your own loan rather than borrowing this one.

Nothing here is a projection of future rates or home prices, and no figure describes what a typical borrower experiences — only what this arithmetic produces from these inputs.