Interest-Only Mortgage Calculator
Compare the two ways a mortgage can run: interest-only, where the balance never moves, and repayment, where it clears. Includes the payment jump when repayment begins — and the UK framing lenders use.
Two mortgages sharing one address
An interest-only mortgage spends its first years paying rent to the bank: the payment covers interest and nothing else, and the balance on the last interest-only day equals the balance on the first. Then repayment begins, and the entire principal must be cleared in the years that remain — which is why the second payment is so much larger.
Interest-only payment = balance × rate ÷ 12 · Repayment payment = the same balance amortized over the remaining years
Example: $300,000 at 6%, 10 interest-only years inside a 25-year term. Interest-only payment: $1,500. From year 11 the payment jumps to about $2,280 to clear the untouched balance in 15 years — and the interest-only decade added roughly $55,000 of extra interest versus repaying throughout.
The UK framing
British lenders split mortgages explicitly into repayment (capital-and-interest) and interest-only, and require interest-only borrowers to show a credible repayment vehicle — savings, investments, or a planned sale. US interest-only loans are usually structured as an interest-only period inside an amortizing loan, as modeled here. Either way the arithmetic is identical: capital does not melt on its own.
How this is calculated
Interest-only phase: monthly interest = balance × nominal rate ÷ 12, balance unchanged. Repayment phase: standard amortization of the full balance over (total term − interest-only years). Total interest sums both phases; the comparison run amortizes the same loan over the full term from day one. The switch on the main mortgage calculator runs the same model with taxes and insurance included.
Frequently asked questions
Who is interest-only actually for?
Borrowers with irregular high income (bonuses, commissions) who genuinely overpay in good months, and some investors. As a way to 'afford' a home you cannot otherwise afford, it is a deferral, not a solution.
What happens at the end of the interest-only period here?
In this model, the loan converts to repayment over the remaining term — the standard US structure. Some products instead demand the entire balance (a balloon); read your note, because the difference is the whole ballgame.
Does interest-only cost more overall?
Yes — the balance stays at its maximum for years, and interest is charged on the balance. The 'extra interest' line in the result is the exact price of the lighter early payments.
Can I pay principal during the interest-only years?
Usually yes, without penalty on modern loans — and doing so converts the product into a flexible repayment mortgage. Confirm prepayment terms in your specific note.
Embed this calculator
Writing about money — a blog, a school page, a community site? Put this calculator on your page, free: copy the code below and paste it where you want the calculator to appear. It stays up to date automatically — the small credit line underneath is all we ask in return.
CalcPrincipal