Interest Only Loan Calculator
Interest-only loan: the payment during the interest-only years, the higher payment after, the jump and total interest against a standard loan. How it works
Use the Interest Only Loan Calculator
About the Interest Only Loan Calculator
A $250,000 loan at 6.5% over 30 years with 5 years interest-only costs $1,354.17 a month for the first 5 years, then $1,688.02 for the remaining 25, a jump of $333.85. Total interest is $337,655.37, which is $18,794.15 more than the $1,580.17-a-month standard loan.
Interest-only period on $250,000 at 6.5% over 30 years
| Interest-only years | Payment during them | Payment after | Payment jump | Total interest | Interest vs standard loan |
|---|---|---|---|---|---|
| 0 (standard loan) | None | $1,580.17 | None | $318,861.22 | +$0.00 |
| 3 | $1,354.17 | $1,638.89 | +$284.72 | $329,749.53 | +$10,888.31 |
| 5 | $1,354.17 | $1,688.02 | +$333.85 | $337,655.37 | +$18,794.15 |
| 10 | $1,354.17 | $1,863.93 | +$509.77 | $359,843.88 | +$40,982.66 |
| 30 (whole term) | $1,354.17 | Balloon of $250,000.00 | None | $487,500.00 | +$168,638.78 |
The standard loan payment is $1,580.17. With a balloon, the payment stays at interest only for the whole term and the full loan amount is due at the end.
The rate, with a 5-year interest-only period on $250,000 over 30 years
| Interest rate | Payment during interest-only | Payment after | Payment jump | Total interest | Standard loan payment |
|---|---|---|---|---|---|
| 5% | $1,041.67 | $1,461.48 | +$419.81 | $250,942.53 | $1,342.05 |
| 6.5% | $1,354.17 | $1,688.02 | +$333.85 | $337,655.37 | $1,580.17 |
| 8% | $1,666.67 | $1,929.54 | +$262.87 | $428,862.16 | $1,834.41 |
The jump is the payment after the interest-only years minus the payment during them.
How to use this tool
- Enter the loan amount, the interest rate, the loan term in years and the interest-only period in years.
- Read the payment during the interest-only period, the payment after it and the jump.
- Compare Total Interest and the interest difference with a standard loan. Set the period to 0 for a standard loan or to the full term for a balloon.
Frequently asked questions
- How do you calculate an interest-only payment?
- Multiply the loan by the annual rate and divide by 12. $250,000 at 6.5% is $250,000 × 0.065 ÷ 12 = $1,354.17 a month. None of it repays principal, so the balance is still $250,000 when the interest-only period ends.
- Why does the payment go up after the interest-only period?
- The full balance must then be repaid over fewer months. $250,000 over the remaining 25 years at 6.5% is $1,688.02 a month, against $1,580.17 for the same loan amortized over 30 years. US bank regulators call a large rise when a loan starts to amortise "payment shock" (Federal Reserve SR 06-15).
- Does an interest-only loan cost more in total?
- In this fixed-rate model, yes. With 5 interest-only years the total interest is $337,655.37 against $318,861.22 on a standard loan, $18,794.15 more. With 10 years it is $40,982.66 more, because the principal stays outstanding longer.
- What if the interest-only period equals the loan term?
- Then no principal is repaid before the end. The payment stays at $1,354.17 for 30 years, total interest is $487,500.00, and the full $250,000 is due as one balloon payment at the end. The tool shows this as Balloon Due at End.
- Does it work for adjustable-rate loans?
- No. It assumes one fixed rate for the whole term. A loan whose rate can change may have a larger jump than the tool shows, so ask the lender for the payment after the interest-only period under the worst case in your contract.
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