{
  "id": "interest-only-mortgage",
  "version": "53c84c7d60d0",
  "status": "published",
  "name": "Interest Only Mortgage Calculator",
  "question": "Is an interest-only mortgage worth it?",
  "summary": "Computes the interest-only payment, the higher payment after the interest-only period, and the extra interest compared with a regular fixed-rate mortgage of the same amount and term.",
  "category": "finance",
  "subcategory": "loans",
  "url": "https://www.acalculator.org/finance/interest-only-mortgage-calculator",
  "markdown": "https://www.acalculator.org/finance/interest-only-mortgage-calculator.md",
  "kind": "schedule",
  "method": "interest-only payment = L × r; later payment = L × r ÷ (1 − (1 + r)^−(n − m)), with L the loan, r the rate ÷ 12, n the months, and m the interest-only months.",
  "assumptions": [
    "The rate is fixed for the whole term, and interest is charged monthly at the yearly rate ÷ 12.",
    "In the interest-only years the balance does not fall; afterwards the whole loan is repaid over the months left.",
    "The first payment is one month after the start date; nothing is rounded between months.",
    "Property tax, insurance, and fees are not included."
  ],
  "inputs": {
    "$schema": "https://json-schema.org/draft/2020-12/schema",
    "type": "object",
    "properties": {
      "amount": {
        "title": "Loan amount",
        "description": "The amount borrowed.",
        "type": "number",
        "x-unit": "USD",
        "minimum": 1000,
        "maximum": 100000000
      },
      "rate": {
        "title": "Interest rate",
        "description": "The fixed yearly rate. The monthly rate is this ÷ 12.",
        "type": "number",
        "x-unit": "percent",
        "minimum": 0,
        "maximum": 30
      },
      "years": {
        "title": "Loan term (years)",
        "description": "The whole length of the mortgage, interest-only years included.",
        "type": "integer",
        "minimum": 2,
        "maximum": 40
      },
      "io": {
        "title": "Interest-only period (years)",
        "description": "How many years at the start you pay only the interest.",
        "type": "integer",
        "minimum": 1,
        "maximum": 39
      },
      "start": {
        "title": "Loan start date",
        "description": "The day the loan starts. The first payment is one month later.",
        "type": "string",
        "format": "date"
      }
    }
  },
  "outputs": {
    "ioPayment": {
      "label": "Interest-only payment",
      "description": "The monthly payment in the interest-only years: the loan × the rate ÷ 12.",
      "format": "money"
    },
    "laterPayment": {
      "label": "Payment after the interest-only period",
      "description": "The level payment that repays the whole loan over the years left.",
      "format": "money"
    },
    "jump": {
      "label": "Payment rise",
      "description": "How much the monthly payment goes up when the interest-only period ends.",
      "format": "money"
    },
    "interest": {
      "label": "Total interest",
      "description": "All the interest over the whole term.",
      "format": "money"
    },
    "regularPayment": {
      "label": "Regular loan payment",
      "description": "The payment on a regular loan of the same amount, rate, and term.",
      "format": "money"
    },
    "regularInterest": {
      "label": "Regular loan interest",
      "description": "All the interest on that regular loan.",
      "format": "money"
    },
    "extraInterest": {
      "label": "Extra interest from interest-only",
      "description": "Total interest minus the regular loan’s interest.",
      "format": "money"
    },
    "total": {
      "label": "Total paid",
      "description": "The loan amount plus all the interest.",
      "format": "money"
    },
    "firstFull": {
      "label": "First higher payment",
      "description": "The month of the first payment after the interest-only period, when a start date is given.",
      "format": "month-year"
    }
  },
  "defaultAnswer": {
    "inputs": {
      "amount": 400000,
      "rate": 6.5,
      "years": 30,
      "io": 10,
      "start": "2026-09-30"
    },
    "outputs": {
      "ioPayment": 2166.6666666666665,
      "laterPayment": 2982.2925420603883,
      "jump": 815.6258753937218,
      "interest": 575750.2100944926,
      "regularPayment": 2528.272093971855,
      "regularInterest": 510177.9538298673,
      "extraInterest": 65572.25626462535,
      "total": 975750.2100944926,
      "firstFull": "2036-10-30"
    },
    "text": "A $400,000.00 interest-only mortgage at 6.5% costs $2,166.67 a month for 10 years, then $2,982.29 a month."
  },
  "examples": [
    {
      "given": {
        "amount": 400000,
        "rate": 6.5,
        "years": 30,
        "io": 10
      },
      "expect": {
        "ioPayment": 2166.6666666666665,
        "laterPayment": 2982.2925420603992,
        "interest": 575750.2100944904,
        "regularPayment": 2528.272093971861,
        "extraInterest": 65572.25626462785
      },
      "source": "CFPB, What is an interest-only loan? (the payment rises when the interest-only period ends); hand calculation in content.mdx, checked in Python 3 (docs/progress/WP-48/python/interest_only.py)"
    },
    {
      "given": {
        "amount": 250000,
        "rate": 7,
        "years": 30,
        "io": 5,
        "start": "2026-10-01"
      },
      "expect": {
        "ioPayment": 1458.3333333333333,
        "laterPayment": 1766.947993187727,
        "firstFull": "2031-11-01"
      },
      "source": "hand calculation in content.mdx, checked in Python 3 (docs/progress/WP-48/python/interest_only.py)"
    },
    {
      "given": {
        "amount": 300000,
        "rate": 0,
        "years": 30,
        "io": 10
      },
      "expect": {
        "ioPayment": 0,
        "laterPayment": 1250,
        "interest": 0,
        "extraInterest": 0
      },
      "source": "hand calculation in content.mdx: at 0% nothing is owed in the interest-only years, then 300,000 ÷ 240"
    }
  ],
  "sources": [
    "Consumer Financial Protection Bureau, What is an \"interest-only\" loan? (the payment rises when the interest-only period ends). https://www.consumerfinance.gov/ask-cfpb/what-is-an-interest-only-loan-en-101/",
    "Consumer Financial Protection Bureau, What is a Qualified Mortgage? (no interest-only payments). https://www.consumerfinance.gov/ask-cfpb/what-is-a-qualified-mortgage-en-1789/",
    "Amortized loan payment (annuity) formula: S. A. Broverman, Mathematics of Investment and Credit, chapter 3."
  ],
  "related": [
    "mortgage",
    "mortgage-interest",
    "amortization",
    "heloc"
  ],
  "changelog": []
}