Calculate the interest-only payment, the higher payment after recast, and what the interest-only structure costs against the same loan fully amortized.
The rate is the one that applies during the interest-only period.
Estimates for planning only. Actual payments depend on your lender's index, margin, rate caps and fees, and an adjustable-rate loan can recast at a rate different from the one shown. Not financial advice.
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An interest-only loan buys you a smaller payment now by postponing every dollar of principal. The bill for that arrives on one specific date: the recast, when the balance you have not touched has to be repaid over whatever term is left. This calculator shows both payments, the size of the jump between them, and what the structure costs against the identical loan repaid normally — so the decision is made on the recast payment rather than the opening one.
An interest-only loan charges only the interest that accrues each month for an opening period, typically 3 to 10 years. The balance does not fall, because nothing is being repaid. When the interest-only period ends the loan recasts: the full balance is amortized over the remaining term, which is shorter than the original one, so the payment rises sharply. A 30-year loan with a 10-year interest-only period repays its entire balance in the final 20 years, which is why the recast payment is well above what the same loan would have cost from the start.
Interest-only payment
A landlord who intends to sell before recast can run the property on the smaller payment and keep the cash flow. The risk is that the exit does not happen on schedule.
Commission, bonus or equity compensation pays down principal in large irregular amounts. An interest-only loan keeps the required payment low between those events.
A short interest-only window covers the gap between buying and selling without committing to a full amortizing payment for a loan you expect to retire quickly.
A borrower confident that income will rise materially may prefer the smaller payment now — provided the recast payment is affordable on today's income, not tomorrow's.
Lenders underwrite an interest-only loan on the recast payment, not the opening one. The recast figure is the number that decides whether you are approved and whether the loan is genuinely affordable.
The jump at recast is typically 20% to 40% on a same-rate loan and far more on a short interest-only window. Knowing the figure years ahead is the difference between planning for it and being caught by it.
The comparison here holds the amount, rate, term and any extra principal identical on both sides, so the difference is the interest-only structure itself rather than the effect of paying more or borrowing differently.
Pay interest only and your balance is unchanged for years while a normal borrower has repaid a real share of the loan. That gap matters if you need to sell or refinance.
Voluntary principal during the interest-only window lowers both the balance at recast and the payment that follows. The calculator applies the same extra to the comparison loan so the effect is attributed correctly.
The recast payment. Under 12 CFR 1026.43(c)(5), a creditor assessing ability to repay must use the fully indexed rate and substantially equal monthly payments of principal and interest that repay the balance over the term remaining as of the recast date. The low interest-only payment is not the qualifying figure.
No. A Qualified Mortgage's payments must not allow the consumer to defer repayment of principal, which is exactly what an interest-only loan does. That places these loans outside QM, which is why they are typically portfolio or non-QM products with tighter credit and reserve requirements.
On a same-rate loan the increase is usually 20% to 40%. The shorter the remaining term, the larger the jump: a 30-year loan with a 10-year interest-only period repays everything in 20 years, so the recast payment is far above a normal 30-year payment on the same balance.
None from payments. Your balance is unchanged unless you pay extra principal voluntarily. Any equity you gain comes from the property appreciating, which is not guaranteed and is not something this calculator assumes.
No. At the same rate and term it always costs more interest, because the full balance keeps accruing interest for years instead of falling. This calculator compares the two on identical terms so the extra cost is shown directly.
Usually yes, and it is the single best way to defuse the recast. Every dollar of principal lowers both the balance at recast and the payment that follows. Check your note for prepayment terms first.
The options are refinancing, selling, or a loan modification, and the first two depend on conditions outside your control — property value, your credit, your income and lending standards at that moment. Planning to refinance is a hope, not a repayment plan.
The amortization calculator models a loan that repays principal from the first payment and shows the full schedule. This one models the interest-only structure specifically: the recast, the payment shock and the cost of deferring principal. Use that one for a normal loan and this one when there is an interest-only period.
It lets you set a different rate from the recast date onward, which is how most interest-only ARMs behave. It does not model periodic caps or index movements, so test a range of rates rather than trusting a single figure.
Because otherwise the comparison would credit the interest-only structure with a saving that the extra payments produced. Holding the extra identical on both sides isolates what the structure itself costs.