Planning cash flow for an investment property? Use our interest only mortgage calculator payment tool to see your low initial monthly payments during the I/O period and, crucially, how much your payment will increase when principal repayment begins.
Interest Only Payment Calculator
interest only mortgage calculator payment Formula
An interest-only loan has two distinct phases. The formula for the initial phase is simple, but the second phase requires recalculating amortization over a shorter period.
Phase 2 (P&I): Standard amortization over (Total Term – IO Term)
Variables
- IO Payment: Covers only the interest accrued each month. Principal balance does not decrease.
- P&I Payment: The fully amortizing payment required to pay off the entire loan balance during the remaining years after the IO period ends.
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What is an Interest Only Mortgage Calculator Payment?
An interest only mortgage calculator payment estimation helps you understand the two-stage structure of these loans. Initially, you pay a lower amount (interest only). However, once that period expires, your payment will “reset.”
This reset causes “Payment Shock” because you must now pay back the entire principal over a much shorter time frame (e.g., paying a 30-year loan balance in just 20 remaining years).
How to Calculate Interest Only Payments (Example)
- Loan Details: $400,000 loan at 6% for 30 years.
- IO Phase (First 10 Years): $400,000 × 0.005 (monthly rate) = $2,000/month.
- Amortization Phase (Next 20 Years): You still owe $400,000, but now have only 20 years to pay it. The new payment jumps to $2,865/month.
- Result: Your payment increases by $865 overnight at year 11.
Frequently Asked Questions (FAQ)
They are popular with real estate investors who want to maximize monthly cash flow or people with variable income (like commissions) who want the flexibility of lower required payments.
No. During the interest-only period, your loan balance stays exactly the same unless you voluntarily make extra principal payments.
This refers to the significant increase in your monthly bill when the interest-only period ends and you must start paying back principal over the reduced remaining term.
Yes. If property values drop, you could end up “underwater” (owing more than the home is worth) because you haven’t paid down any of the debt.