Interest Only Loan Calculator

Use this interest only calculator to calculate your monthly interest payment based on the loan amount and interest rate.

What is an interest-only loan?

An interest-only loan is a type of loan where the borrower is only required to pay the interest on the loan for a specific period, typically ranging from 5 to 10 years. During this period, the borrower does not make any principal payments. After the interest-only period ends, the loan typically converts to a traditional mortgage, and the borrower starts making principal and interest payments.

How does an interest-only mortgage calculator work?

An interest-only mortgage calculator is a tool that helps borrowers estimate their monthly interest-only payments based on the loan amount and interest rate. The calculator applies a simple formula:

(Interest rate % * Loan amount) / 12 = Monthly payment

If you have a 5 percent interest rate and a $300,000 loan, you could compute the monthly interest-only payment: (0.05 * 300,000) / 12 = $1,250.00 monthly payment

Interest-only mortgage pros and cons:

Interest-only mortgages have both advantages and disadvantages depending on the borrower's financial situation and goals. Here are the pros and cons of interest-only mortgages:

Interest-Only Mortgage Pros

• Lower initial payments: During the interest-only period, monthly payments are significantly lower as you're only paying interest, not principal.
• Flexibility: Borrowers can choose to pay more than the interest when they can afford it, allowing for budget flexibility.
• Potential for investment: The money saved on lower payments can be invested elsewhere, potentially yielding higher returns.
• Qualify for a larger loan: Lower initial payments may allow borrowers to qualify for a larger mortgage amount.

Interest-Only Mortgage Cons

• Higher long-term costs: Once the interest-only period ends, payments increase substantially as you begin paying both principal and interest.
• No equity buildup: During the interest-only period, you're not building equity in your home unless property values rise.
• Risk of negative equity: If property values decline, you could owe more than your home is worth.
• Potential for payment shock: When the interest-only period ends, the dramatic increase in payments can be difficult for some borrowers to manage.
• Limited availability: Not all lenders offer interest-only mortgages, and they often have stricter qualification requirements.
• Refinancing challenges: It may be harder to refinance if you haven't built up equity in your home.

How to use the interest-only home loan calculator?

Please input the loan principal amount (without "$" or commas) and the interest rate in percentage (without the "%" sign) in the fields below. Then click the "Calculate" button to calculate the monthly interest-only payment.

**Disclaimer:** This loan calculator provides calculation results for reference purposes only and does not constitute legal or financial advice.