Interest-only monthly payment and supporting figures
Principal remains unchanged during the interest-only period. Once that period ends, a level payment repays the original principal over the months remaining in the entered total term at the same rate.
To test the later payment against a monthly payment limit, the Loan Affordability Calculator provides a separate affordability estimate.
The formula
Principal remains unchanged during the interest-only period. Once that period ends, a level payment repays the original principal over the months remaining in the entered total term at the same rate.
Worked interest only loan example
A 100,000 loan at 6% has a 500 interest-only monthly payment. With five interest-only years within a 30-year total term, the later 25-year payment is approximately 644.30.
How to use this calculator
- Enter loan amount, annual interest rate, amortization term.
- Set interest-only period using the stated units or choices.
- Calculate and compare interest-only monthly payment, monthly payment after interest-only period, interest during initial period, total modeled loan interest.
Choosing inputs for interest only loan
The total loan term includes the interest-only period. Entering thirty years with five years interest only leaves twenty-five years to repay principal. The model does not add five years to a thirty-year amortizing period, and it rejects an interest-only period that consumes the entire term.
Paying only interest keeps the outstanding principal unchanged. That can reduce the early required payment while increasing the later payment compared with a loan amortizing from the outset. At a zero rate, the interest-only payment is zero, but the remaining principal still has to be repaid after that period.
Interpreting interest-only monthly payment
Some real interest-only contracts have adjustable rates, maturity balloons, optional principal payments, or specific recalculation rules. The same-rate transition shown here isolates the effect of delaying principal repayment. Compare the payment increase with your future budget and review the lender’s required disclosures before relying on the estimate for affordability.
Assumptions & limitations
What this calculation assumes
- One fixed nominal annual rate applies throughout both phases.
- No principal is paid during the interest-only phase.
What to keep in mind
- Rate resets, optional early principal payments, taxes, insurance, and balloon maturity structures are excluded.
Common questions
Why does the payment rise later?
The remaining principal must be repaid over fewer months once the interest-only phase ends.
Can I set the initial period to zero?
Yes. The initial phase disappears and the later payment is the ordinary fully amortizing payment.
Does the total term start after the interest-only period?
No. The initial interest-only months are part of the total entered term, leaving fewer months to repay principal.
Sources & further reading
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