Calculator guide
Estimate an interest-only mortgage payment and the later payment required when principal repayment begins.
Formula or method
Interest-only payment = P × annual rate / 12. After the interest-only period, the unchanged principal is amortized over the remaining term with the standard payment formula.
How to use this calculator
- Enter the principal, annual rate, total term, and interest-only period.
- Review the interest-only payment and remaining principal.
- Compare it with the estimated amortizing payment after the interest-only period.
Worked example
A $300,000 balance at 6.5% costs $1,625 per month during interest-only payments; after 5 years, the remaining $300,000 amortized over 25 years would be about $2,026 per month.
Understanding the result
Interest-only payments do not reduce the balance in this model. The later payment can be materially higher even when the rate is unchanged.
Limitations and assumptions
- Assumes no principal payments, rate changes, fees, or prepayment penalties during the interest-only period.
- Actual products may recast, use different terms, or permit only limited interest-only payments.
Frequently asked questions
Does the balance fall during interest-only payments?
Not in this calculator's model; principal stays at the entered amount.
Why is the later payment higher?
The same principal must be repaid over fewer remaining months.
Does this include escrow?
No. Taxes and insurance are separate from principal and interest.
Sources
Educational estimate only; not financial advice or a mortgage offer.