Calculate monthly interest-only payments on any loan or line of credit. See how much interest you'll pay and compare against fully amortizing payments.
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An interest-only loan requires the borrower to pay only the interest portion of the loan for a set period — typically 5–10 years. During this time, the principal balance does not decrease. After the interest-only period ends, the remaining principal is amortized over the remaining loan term, resulting in higher monthly payments.
When the interest-only period expires, the remaining loan principal is amortized over the remaining term. Since the principal hasn't decreased and there are fewer years left, monthly payments increase — sometimes significantly.
Interest-only loans can make sense for real estate investors who expect appreciation, high earners with variable income, or buyers who plan to sell before the IO period ends. They are risky for borrowers who cannot handle the payment jump after the IO period.
Interest-only loans typically carry slightly higher interest rates than conventional amortizing loans because they represent higher risk for lenders — the principal balance doesn't decline during the IO period.
Most interest-only loans allow — and often encourage — voluntary principal payments during the IO period. These reduce your balance and lower future payments, combining the cash flow flexibility of IO with equity building.
A Home Equity Line of Credit (HELOC) typically has an interest-only draw period (usually 10 years), followed by a repayment period where principal and interest are due. Our interest-only HELOC calculator handles this specific structure.
On a $250,000 loan at 6.5%, a 30-year fixed payment is about $1,580/month from day one. An interest-only payment on the same loan is $1,354/month — $226 less — but you build zero equity during the IO period.