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Interest-Only Loan Calculator

See your payment now, and the jump when the interest-only period ends.

How does an interest-only loan work?
For a set period, your payment covers only the interest on the loan — none of the principal is paid down, so the balance never shrinks. Once that period ends, the payment resets to fully pay off the original balance over whatever time is left, which is usually a significantly larger payment.

Your numbers

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Once the interest-only period ends, this is how long you have left to pay off the full loan amount.

Enter your numbers and press Calculate to see your results.

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What Happens When the Interest-Only Period Ends

This calculator shows both sides of an interest-only loan: the lower payment during the interest-only period, and the larger payment that follows once that period ends and the loan starts amortizing the full original balance over the remaining time.

That jump in payment — sometimes called "payment shock" — is the central tradeoff of an interest-only structure. A lower payment for a while is exchanged for a bigger one later, and for less total time to pay down the actual balance.

The comparison scenario shows what a fully amortizing loan of the same amount, rate, and total term would have cost from day one, so you can see the actual dollar cost of choosing the interest-only structure over that period.

How this is calculated

Interest-only payment = balance × rate ÷ 12. After that period, payment = standard amortization of the full balance over the remaining payoff period.

Assumptions

  • During the interest-only period, payments cover interest only — none of the principal is paid down, so the balance stays the same the whole time.
  • After the interest-only period ends, the payment resets to fully pay off the original loan amount over the remaining payoff period — usually a noticeably larger payment, sometimes called "payment shock."
  • Uses one fixed rate for the whole term. Many real interest-only loans, especially HELOCs, have a variable rate that can change the payment further.

Frequently asked questions

Why would someone choose an interest-only loan?
Common reasons include a lower payment while income is expected to rise, short-term ownership plans, or using the freed-up cash flow elsewhere. It carries real risk if the later, larger payment isn’t affordable when it arrives.
Does the balance ever go down during the interest-only period?
No — by definition, an interest-only payment covers only that period’s interest. The balance stays exactly the same until principal payments begin.
Is this the same as a HELOC?
A HELOC (home equity line of credit) is often structured with an interest-only draw period, so the same math applies. HELOCs typically carry a variable rate, though, which this calculator does not model.
Can I pay extra toward principal during the interest-only period?
Often yes, and it can meaningfully reduce the balance before the amortizing period begins — check whether your specific loan allows it without a penalty.

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This calculator provides estimates for educational purposes only and is not personalized financial advice. Rates, taxes, and financial products change — verify with providers and qualified professionals.