Interest-Only Loan Calculator
Price both phases of an interest-only loan: the light payments while only interest is due, and the heavier amortizing payments that must clear the whole principal afterwards.
Renting money, then buying it back at speed
An interest-only loan splits time into a cheap district and an expensive one. In the first, payments cover interest alone and the balance stands perfectly still. In the second, the entire principal must be repaid in the remaining years — so the payment roughly doubles or triples the day the music changes.
Phase 1 payment = principal × rate ÷ 12 · Phase 2 payment = principal amortized over the remaining term
Example: $50,000 at 8%, interest-only for 2 years of a 7-year loan: phase 1 costs $333.33 a month and repays nothing. Phase 2 must clear $50,000 in 5 years: $1,013.82 a month. Total interest $32,829 — versus $25,509 for a loan amortized from day one.
Where the structure is honest
Bridge loans, construction draws and some commercial facilities use interest-only because the asset itself is in transition. The structure is honest when the exit is real (a sale, a completion, a contracted receivable) and dangerous when the exit is a hope and a refinance.
How this is calculated
Phase 1: monthly interest = principal × nominal rate ÷ 12, balance constant. Phase 2: standard level-payment amortization of the full principal over (total term − interest-only period). Total interest is the sum of both phases. The mortgage variant of this model, with the UK repayment framing, lives on the interest-only mortgage calculator.
Frequently asked questions
Is the principal due in a lump at the end instead?
Some interest-only loans are structured that way (a balloon). This page models the convert-to-amortizing structure; if yours balloons, the balloon-loan calculator prices it.
Why would a lender offer interest-only at all?
Collateral and exit. Where the lender's comfort comes from an asset and a defined event rather than your monthly surplus, interest-only matches the loan to the event.
Can I voluntarily pay principal in phase 1?
Usually yes, and every dollar paid lowers all subsequent interest and the phase-2 payment alike. Confirm no prepayment penalty applies.
How does interest-only affect total cost vs a normal loan?
It always costs more in total interest for the same rate and end date, because the balance spends longer at its maximum. The result panel states the premium exactly.
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