Interest-Only Payment Calculator
What Is an Interest-Only Payment?
An interest-only payment refers to a loan payment where the borrower pays only the accrued interest for a specified initial period. During this phase, the principal (loan amount) remains unchanged. While the monthly payments are lower during the interest-only period, the borrower is not reducing their loan balance. After this period ends, the borrower may transition to paying both interest and principal or refinance the loan. Interest-only loans are common in adjustable-rate mortgages or short-term financing strategies.
How to Use the Interest-Only Payment Calculator
To estimate your interest-only payments and total interest costs, follow these simple steps:
- Enter the principal amount of your loan in the “Loan Amount” field. For example, $200,000.
- Provide the annual interest rate as a percentage in the “Annual Interest Rate” box. For instance, enter 5.5 for 5.5%.
- Specify the duration of the interest-only period in years under “Interest-Only Period.” For example, 5 years.
- Click the “Calculate” button to view the results, including the monthly interest-only payment and total interest for the period.
- Review the results, which include the calculated amounts and a brief explanation of the formula used.