Interest Only Calculator

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Reviewed by: David Chen, CFA
David is a Chartered Financial Analyst and licensed mortgage advisor with 15 years of experience in residential and investment property lending, specializing in non-traditional loan structures.

This 4-in-1 Interest-Only Loan calculator helps you understand the costs of an I-O loan. Enter any three variables—Loan Amount, Annual Rate, Term, or Total Interest Paid—and we will solve for the fourth.

Loan Amount ($) (P)

Annual Rate (%) (R)

Interest-Only Term (Years) (T)

Total Interest Paid ($) (I)

Interest-Only Loan Formulas

Solve for Total Interest (I):
I = P * (R / 100) * T

Solve for Loan Amount (P):
P = I / ( (R / 100) * T )

Solve for Annual Rate (R):
R = ( I / (P * T) ) * 100

Solve for Loan Term (T):
T = I / ( P * (R / 100) )

Monthly Payment (M) = (P * (R / 100)) / 12

Formula Source: Investopedia – Interest-Only Loan

Formula Variables

(P) Loan Amount: The principal balance of your loan, which does not decrease during the I-O period.
(R) Annual Rate: The loan’s fixed annual interest rate (APR).
(T) Loan Term: The total number of years in the interest-only period (e.g., 5, 7, or 10 years).
(I) Total Interest Paid: The total sum of all interest payments made *during the interest-only period*.
(M) Monthly Payment: The fixed monthly payment covering *only* interest.

Related Calculators

What is an Interest-Only Calculator?

An Interest-Only (I-O) Calculator is a tool that helps you understand the costs associated with an interest-only loan. With an I-O loan, your monthly payments for a set period (the “I-O term”) consist *only* of the interest due on the principal. Your principal balance does not decrease during this time.

This results in significantly lower monthly payments compared to a traditional amortizing (Principal & Interest) loan, but it comes at a cost: you are not building any equity through your payments. I-O loans are often used for investment properties, where the owner wants to maximize cash flow, or by individuals with high, fluctuating incomes.

This 4-in-1 calculator focuses on the relationship between the four main variables of the I-O period. It helps you calculate the total interest you will pay over the term, or solve for the loan amount, rate, or term if you have the other three variables. It also shows you the crucial Monthly Interest Payment.

How to Calculate Total Interest-Only Payments (Example)

Identify Your Loan Details
You are getting a $400,000 (P) mortgage with a 10-year (T) interest-only period at a 7.0% (R) annual rate. You want to find the Total Interest (I) you will pay during those 10 years.
Find the Annual Interest
First, find the total interest paid for one year: Annual Interest = P * (R / 100)
Annual Interest = $400,000 * (7.0 / 100) = $400,000 * 0.07 = $28,000
Calculate Total Interest for the Term (I)
Multiply the annual interest by the number of years in the I-O term:
Total Interest (I) = $28,000 * 10 Years = $280,000
(Optional) Find the Monthly Payment (M)
To find your monthly payment, simply divide the annual interest by 12:
Monthly Payment (M) = $28,000 / 12 = $2,333.33
Final Result
Over the 10-year interest-only period, you will make monthly payments of $2,333.33, for a total of $280,000 paid in interest. At the end of the 10 years, you will still owe the full $400,000 principal.

Frequently Asked Questions (FAQ)

What happens after the interest-only period ends?

One of two things happens: 1) The loan requires a single “balloon payment,” meaning you must pay the entire principal balance ($400,000 in our example) at once. 2) The loan “recasts,” and your payment is recalculated to pay off the full principal over the *remaining* loan term (e.g., the last 20 years of a 30-year loan). This causes a very large increase in your monthly payment.

Is an interest-only loan a good idea?

For most homeowners, no. Traditional Principal & Interest (P&I) loans are safer because you build equity with every payment. I-O loans are riskier and are typically designed for sophisticated investors or individuals who are certain their income will increase significantly before the I-O period ends.

Does this calculator work for a HELOC?

Yes, this calculator is perfect for modeling the “draw period” of a Home Equity Line of Credit (HELOC), which is almost always an interest-only loan. You can calculate the exact monthly interest payment based on your balance.

How do I solve for the Monthly Payment?

This calculator is designed to solve for the 4 main variables (P, R, T, I). However, the Monthly Payment (M) is shown in the calculation steps. You can easily find it by entering (P), (R), and (T) and solving for (I). The steps will show you the (M) used to get that total.

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