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Interest Only Loan Calculator
Interest Only Loan Calculator (2026)
Calculate interest-only monthly payments, see the exact payment shock when principal kicks in, and get a full amortization schedule — for mortgages, HELOCs, and construction loans.
For interest-only purchase mortgages or refinances. Calculates IO period payment, fully-amortized payment after IO ends, and total interest cost.
Purchase price minus down payment
Current 30-yr IO rates: ~7.0–7.75%
Typically 5–10 years
30 years is most common
Paying extra during IO period reduces future payment shock
HELOC draw period is typically 10 years interest-only. After draw period, a 20-year repayment phase begins with full principal + interest payments.
Amount currently drawn from credit line
HELOC rates are variable — avg ~9.0–9.5% in 2026
Typically 20 years after draw period
Construction loans are interest-only during the build phase. Funds are drawn progressively — this calculates your average IO payment based on expected total draw.
Total approved construction budget
Typically prime + 1–2% for construction
Typical: 6–18 months for new construction
Rate after conversion to permanent mortgage
At 50%, avg monthly IO payment uses half total loan
Results
Adjust inputs and click Calculate
$2,333/mo
Interest-Only Monthly Payment
$3,101Full Payment After IO
$768Payment Increase
$624,287Total Interest Paid
$1,024,287Total Amount Paid
Phase Comparison
IO Period—
IO Monthly Payment—
Amortization Period—
Full Monthly Payment—
Interest During IO Phase—
Interest After IO Phase—
—
| Month | Phase | Payment | Principal | Interest | Balance |
|---|
*Estimates only. Does not include property taxes, insurance, or PMI. Consult your lender for exact figures.
How Interest-Only Loans Work
An interest-only (IO) loan has two distinct phases. During the IO period (typically 5–10 years), your monthly payment covers only the interest — your principal balance does not change at all. After the IO period, you enter the amortization phase, where your payment jumps significantly because you must now repay 100% of the original principal over a shorter remaining term.
The Two Phases in Plain English
| Phase | Duration | What You Pay | Balance Change |
|---|---|---|---|
| Interest-Only Period | 5–10 years (typical) | Interest only — no principal | Stays at 100% of original loan |
| Amortization Period | Remaining term (e.g., 20 yrs on a 30-yr loan) | Principal + Interest — full payment | Decreases each month |
The hidden cost of IO loans: On a 30-year mortgage with a 10-year IO period, you have only 20 years left to pay off the full original balance — not 30. This compresses the repayment schedule, resulting in higher monthly payments and more total interest than a standard 30-year amortizing loan.
Interest-Only Loan Payment Formula
The IO payment is straightforward — simpler than a standard amortizing payment because no principal is included:
Interest-Only Period Payment
Monthly IO Payment = Loan Balance × (Annual Rate ÷ 12)
Example: $400,000 × (7.0% ÷ 12) = $400,000 × 0.005833 = $2,333/month
Fully-Amortized Payment (After IO Period)
Monthly Payment = P × [r(1+r)^n] ÷ [(1+r)^n − 1]
P = remaining balance (= original loan if no extra payments made)
r = monthly rate = Annual Rate ÷ 12
n = remaining months (e.g., 240 months if 20 years remain)
Example: $400K at 7%, 20 yrs remaining → $3,101/month
Payment Shock Calculation
Payment Shock ($) = Full Amortized Payment − IO Payment
Payment Shock (%) = (Full Payment ÷ IO Payment − 1) × 100
Example: ($3,101 − $2,333) = $768 more (+32.9% increase)
💡 Reduce payment shock with extra payments: If you pay $300 extra toward principal each month during a 10-year IO period, you reduce the balance from $400,000 to $364,000 — lowering the post-IO payment from $3,101 to $2,820/month. Use the Extra Payment field in the calculator above to model this.
Payment Shock — The Most Important Number
Payment shock is the sudden and permanent increase in your monthly mortgage payment when the interest-only period ends. It is the primary risk of IO mortgages and the reason lenders are required by the Ability-to-Repay (ATR) rule to qualify borrowers at the fully-amortized payment — not the lower IO payment.
Real Payment Shock Examples (2026)
| Loan Amount | Rate | IO Period | IO Payment | Post-IO Payment | Shock |
|---|---|---|---|---|---|
| $300,000 | 7.0% | 10 yr (20 yr left) | $1,750/mo | $2,326/mo | +$576 (+33%) |
| $400,000 | 7.0% | 10 yr (20 yr left) | $2,333/mo | $3,101/mo | +$768 (+33%) |
| $600,000 | 7.5% | 10 yr (20 yr left) | $3,750/mo | $4,833/mo | +$1,083 (+29%) |
| $800,000 | 7.25% | 5 yr (25 yr left) | $4,833/mo | $5,791/mo | +$958 (+20%) |
| $1,000,000 | 7.5% | 10 yr (20 yr left) | $6,250/mo | $8,056/mo | +$1,806 (+29%) |
Assumes no extra principal payments during IO period and rate remains constant throughout.
HELOC Interest-Only Calculator — How It Works
A Home Equity Line of Credit (HELOC) is a revolving credit line secured by your home equity. Most HELOCs have a 10-year draw period during which you can borrow up to your credit limit and pay interest only on the amount drawn. After the draw period, the repayment period begins — typically 20 years of fully amortizing principal + interest payments.
HELOC IO Payment Formula
Monthly IO Payment = Outstanding Balance × (Current Rate ÷ 12)
Example: $75,000 drawn at 9.25% → $75,000 × (0.0925 ÷ 12) = $578/month
HELOC vs. Home Equity Loan
| Feature | HELOC | Home Equity Loan |
|---|---|---|
| Rate type | Variable (Prime + margin) | Fixed |
| Draw structure | Revolving line — draw as needed | Lump sum at closing |
| IO period | Yes — typically 10 years | No — amortizes immediately |
| Payment stability | Varies with rate and balance | Fixed and predictable |
| Best for | Ongoing expenses — renovations, tuition | One-time large expense |
| 2026 typical rate | Prime + 0.5–1% (~9.0–9.5%) | 8.5–9.5% fixed |
HELOC rate risk: HELOCs are variable-rate products. The Federal Reserve's rate cycle directly impacts your HELOC payment. A 1% rate increase on a $100,000 HELOC balance adds $83/month to your IO payment. Always model worst-case scenarios (rate + 2%) when qualifying for a HELOC.
Construction Loan Interest-Only Calculator
Construction loans are almost universally interest-only during the construction phase (typically 6–24 months). Unlike a standard mortgage, funds are disbursed in stages (called "draws") as construction milestones are completed — so you only pay interest on the amount actually drawn, not the full loan amount.
How Construction Loan IO Payments Work
- Month 1–3: Foundation and framing draws (~25–30% of loan) → small IO payment
- Month 4–8: Mechanical, electrical, plumbing draws (~50–60% drawn) → growing IO payment
- Month 9–12+: Finishing draws (~75–100% drawn) → near-maximum IO payment
- At completion: Loan converts to permanent mortgage (construction-to-perm) or is refinanced
Monthly IO Payment = Amount Drawn × (Rate ÷ 12)
Avg payment during build = Total Loan × Avg Draw% × (Rate ÷ 12)
Example: $350,000 loan, 50% avg draw, 8.5% → $350K × 0.50 × 0.007083 = $1,240/mo avg
💡 Construction-to-permanent loans (also called "one-time close") combine the construction and permanent mortgage into one loan, saving you from a second round of closing costs. The loan automatically converts to a standard 30-year mortgage when construction is complete. This calculator's Construction mode shows both the IO build-phase payments and the post-conversion permanent payment.
Interest-Only Loan Pros & Cons
Pros
- Lower initial payments. IO payments are 20–35% lower than fully-amortizing payments, freeing cash flow for other investments or expenses.
- Flexibility for high earners with variable income. Commission-based earners, business owners, and investors can pay minimums in slow months and make principal lump-sum payments in good months.
- Investment leverage. If you can earn more than your mortgage rate by investing the payment difference, IO loans can make mathematical sense. At 7% mortgage rate, you'd need investment returns above 7% after tax to justify this strategy.
- Useful for short hold periods. Investors who plan to sell in 3–5 years never experience payment shock — they capture appreciation without the higher amortizing payment.
Cons
- Zero equity buildup. You build no equity through payments — only through appreciation. If prices fall, you can go underwater immediately.
- Payment shock is real and significant. A 30–40% payment increase after the IO period is not hypothetical — it is mathematically guaranteed unless you have paid down significant principal.
- Higher total interest cost. IO loans cost more in total interest than standard amortizing loans because the principal balance stays higher for longer.
- Qualification is harder. Lenders must qualify you at the fully-amortized payment (ATR rule), so you must prove you can afford the higher payment even if you're not paying it yet.
Frequently Asked Questions
How do I calculate an interest-only loan payment?
Multiply your loan balance by the monthly interest rate: Monthly IO Payment = Balance × (Annual Rate ÷ 12). Example: $400,000 at 7.0% → $400,000 × 0.005833 = $2,333/month. No principal is included — your balance stays at $400,000 until the IO period ends. Use the calculator above to also see the post-IO payment and total interest cost.
What happens when the interest-only period ends?
Your payment increases — sometimes dramatically. On a 30-year mortgage with a 10-year IO period, you now have 20 years to repay 100% of the original balance. The fully-amortized payment on $400,000 at 7% over the remaining 20 years is $3,101/month — $768 more than the $2,333 IO payment. This 33% increase is called payment shock and is the primary risk of IO loans.
Is an interest-only mortgage a good idea?
It depends on your situation. IO mortgages make sense for: real estate investors with short hold periods, high earners with irregular income, and buyers who will invest the payment difference at returns exceeding the mortgage rate. They are risky for: primary residence buyers who cannot afford the post-IO payment, buyers with no other equity cushion, and anyone in a flat or declining home value market.
What is the current HELOC interest-only payment rate?
In 2026, HELOC rates average 8.75–9.5% (Prime + 0.5–1%). The Prime Rate directly drives HELOC rates. At 9.25%, a $75,000 HELOC balance costs $578/month interest-only. Use the HELOC tab above to calculate your specific payment and see what happens when the 10-year draw period ends and full repayment begins.
How does an interest-only construction loan work?
During construction (typically 6–18 months), you draw funds in stages and pay interest only on the drawn amount. Payments start small and grow as more funds are drawn. At completion, the loan converts to a permanent mortgage (construction-to-perm) or is refinanced. Construction loan rates are typically 1–2% higher than permanent mortgage rates due to lender risk.
Can I make extra payments on an interest-only loan?
Yes — most IO loans allow extra principal payments. Use the Extra Payment field in the calculator above to see the impact. Even $300/month in extra principal payments over a 10-year IO period reduces the balance from $400,000 to $364,000, lowering the post-IO payment by ~$280/month. This is the most effective way to reduce payment shock without refinancing.
Do interest-only loans build equity?
No — IO payments build zero equity. Your balance remains at 100% of the original loan until the amortization phase begins. The only equity you gain during the IO period comes from your initial down payment and home price appreciation. This is why IO loans are risky in flat or declining markets — you have no payment-based equity cushion to absorb value drops.
What is a 40-year interest-only mortgage?
A 40-year IO mortgage typically has a 10-year IO period followed by 30 years of full amortization. Because of the longer amortization period (30 years vs. 20 years on a standard 30-year loan with 10-year IO), the post-IO payment is lower than a standard 30-year mortgage with IO. However, the total interest paid over 40 years is significantly higher. Some lenders offer these as affordability products in high-cost markets.