Comprehensive Guide
Learn more in our Loans & Mortgage Guide.
How it works
interest-only vs amortizing loan calculator takes your inputs and produces interest-only: monthly payment, amortizing: monthly payment, interest-only: total cost, amortizing: total cost, extra interest from io period. Compare interest-only and fully amortizing loans — lower payments now vs total cost over time. You provide 4 inputs: Loan amount (currency, in dollars) (default: 300000 dollars); Interest rate (%) (percent, in percent) (default: 6.5 percent); Loan term (years) (number) (default: 30); Interest-only period (years) (number) (default: 10). The calculator returns 5 outputs: Interest-only: monthly payment (the primary result); Amortizing: monthly payment (a secondary output); Interest-only: total cost (a secondary output); Amortizing: total cost (a secondary output); Extra interest from IO period (a secondary output). Loans and mortgages are amortized instruments where the split between interest and principal shifts every month. Understanding the total cost of borrowing — not just the monthly payment — is the difference between a sustainable debt load and one that erodes your net worth over time. This calculator reveals the full amortization picture. The underlying formula: IO payment = Principal × Rate ÷ 12. Amortizing payment = P × r(1+r)^n / ((1+r)^n − 1). With the default values, interest-only: monthly payment is computed from the interaction of every input field — change any one of them and the result updates immediately, so you can stress-test different scenarios without re-entering the whole form. Adjust the inputs to match your real financial situation. The defaults are realistic starting points, but every person's circumstances differ — your actual income, expenses, rates, and timelines will produce a different answer. Use the tool iteratively: start with the defaults, then change one variable at a time to see which factor has the largest impact on your outcome.Formula
IO payment = Principal × Rate ÷ 12. Amortizing payment = P × r(1+r)^n / ((1+r)^n − 1).
Tips
- Interest-only payments are 30–40% lower than amortizing payments initially.
- After the IO period, payments jump 40–60% when amortization begins.
- Total interest cost is significantly higher with interest-only loans.
- Only use IO if you have a clear plan to pay off principal before the IO period ends.
Frequently asked questions
When does an interest-only loan make sense?
For real estate investors who plan to sell or refinance before the IO period ends. For borrowers expecting a significant income increase. For short-term ownership (5–7 years). NOT for long-term homeowners.
How much more does an interest-only loan cost?
On a $300K loan at 6.5% with 10-year IO period: $97,500 extra interest over the life of the loan. The IO period saves $733/month but costs significantly more in total.
What does the interest-only vs amortizing loan calculator calculate?
It takes loan amount, interest rate (%), loan term (years), interest-only period (years) as inputs and computes interest-only: monthly payment, amortizing: monthly payment, interest-only: total cost, amortizing: total cost, extra interest from io period. The primary output is interest-only: monthly payment. Compare interest-only and fully amortizing loans — lower payments now vs total cost over time.