# What will my interest-only loan cost?

Computes the interest-only payment, the payment after the interest-only period (or the balloon when the whole term is interest-only), and the extra interest compared with a regular loan.

- Page: https://www.acalculator.org/finance/interest-only-loan-calculator
- JSON spec: https://www.acalculator.org/finance/interest-only-loan-calculator.json
- Version: 4d9fc44e2137

## Default answer

Example with the default inputs (Loan amount $300,000.00, Interest rate 7%, Loan term (years) 30, Interest-only period (years) 10, Loan start date September 30, 2026) on the example date Wednesday, September 30, 2026: A $300,000.00 loan at 7% costs $1,750.00 a month while it is interest-only, and $468,215.23 in interest over the whole term.

## Inputs

| Key | Label | Description |
| --- | --- | --- |
| amount | Loan amount | The amount borrowed. |
| rate | Interest rate | The fixed yearly rate. The monthly rate is this ÷ 12. |
| years | Loan term (years) | The whole length of the loan in years, interest-only years included; 1.5 is 18 months. |
| io | Interest-only period (years) | How many years at the start you pay only the interest. Make it equal to the term for a loan repaid in one balloon. |
| start | Loan start date | The day the loan starts. The first payment is one month later. |

## Outputs

| Key | Label | Description |
| --- | --- | --- |
| ioPayment | Interest-only payment | The monthly payment in the interest-only months: the loan × the yearly rate ÷ 12. |
| laterPayment | Payment after the interest-only period | The level monthly payment that repays the whole loan over the months left in the term. |
| jump | Payment rise | How much the monthly payment goes up when the interest-only period ends. |
| balloon | Balloon at the end | When the whole term is interest-only, the loan amount, due with the last payment. |
| ioInterest | Interest in the interest-only period | All the interest paid while the payments are interest-only. |
| interest | Total interest | All the interest over the whole term. |
| paid | Total paid | The loan amount plus all the interest. |
| regularPayment | Regular loan payment | The level monthly payment on a regular loan of the same amount, rate, and term. |
| extraInterest | Extra interest | The total interest minus the interest on the regular loan: what the interest-only months cost. |
| payoff | Last payment | The month of the last payment, when a start date is given. |

## Method

Interest-only payment = L × r; later payment = L × r ÷ (1 − (1 + r)^−(n − m)), with r = rate ÷ 1200, n the months in the term, and m the interest-only months; when m = n the loan L is due as a balloon.

## Assumptions

- The rate is fixed for the whole term and interest is charged monthly at the yearly rate ÷ 12.
- Payments are made at the end of each month; the first is one month after the start date.
- The term and the interest-only period are rounded to whole months.
- After the interest-only months, the level payment repays the whole loan by the end of the term.
- Values are not rounded to the cent between months; only the display is rounded.

## Worked examples

1. amount = $300,000.00, rate = 7%, years = 30, io = 10 gives ioPayment = $1,750.00, laterPayment = $2,325.90, jump = $575.90, interest = $468,215.23, regularPayment = $1,995.91, extraInterest = $49,688.54. Source: Consumer Financial Protection Bureau, What is an interest-only loan? https://www.consumerfinance.gov/ask-cfpb/what-is-an-interest-only-loan-en-1917/.
2. amount = $500,000.00, rate = 9%, years = 2, io = 2, start = 2026-10-01 gives ioPayment = $3,750.00, balloon = $500,000.00, interest = $90,000.00, paid = $590,000.00, payoff = 2028-10-01. Source: Consumer Financial Protection Bureau, What is an interest-only loan? https://www.consumerfinance.gov/ask-cfpb/what-is-an-interest-only-loan-en-1917/.
3. amount = $120,000.00, rate = 0%, years = 10, io = 2 gives ioPayment = $0.00, laterPayment = $1,250.00, interest = $0.00, extraInterest = $0.00. Source: Consumer Financial Protection Bureau, What is an interest-only loan? https://www.consumerfinance.gov/ask-cfpb/what-is-an-interest-only-loan-en-1917/.

## FAQ

### How is an interest-only payment calculated?

Multiply the loan by the yearly rate and divide by 12. A $300,000 loan at 7% has an interest-only payment of 300,000 × 0.07 ÷ 12 = $1,750 a month. The balance does not go down while you pay only interest.

### What happens when the interest-only period ends?

The whole loan must then be repaid over the years that are left, so the payment rises. On the $300,000 loan at 7% over 30 years with 10 interest-only years, the payment goes from $1,750 to $2,325.90 for the last 20 years.

### Does an interest-only loan cost more?

Yes, at the same rate and term. You borrow the full amount for longer, so you pay more interest in total. In the example above the loan costs $468,215 in interest, $49,689 more than a regular 30-year loan at 7%.

### What if the whole loan is interest-only?

Set the interest-only period equal to the term. You then pay only interest every month and repay the full amount in one balloon payment at the end. Bridge loans and some business loans work this way.

### Why would anyone choose an interest-only loan?

The payment is lower at first, which can help when income is expected to rise, when the property will be sold before the payments rise, or for a short bridge loan. The risk is that the higher payment or the balloon comes due when you cannot pay or refinance it.

### Is the example rate on this page today’s rate?

No. The page shows no live rates. The default rate is only an example; enter the rate your lender quotes.

## Sources

- Consumer Financial Protection Bureau, What is an interest-only loan? https://www.consumerfinance.gov/ask-cfpb/what-is-an-interest-only-loan-en-1917/
- Regulation Z, 12 CFR 1026.18(g) and 1026.37(c), disclosure of interest-only payments and balloon payments. https://www.consumerfinance.gov/rules-policy/regulations/1026/18/
- Amortized loan payment (annuity) formula: S. A. Broverman, Mathematics of Investment and Credit, chapter 3.