Calculate interest-only mortgage payments, payment shock when the IO period ends, total interest costs, and compare with traditional amortizing loans.
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Interest-only loans offer lower initial payments but come with significant risks. When the IO period ends (typically 5-10 years), your payment can double or triple. Our calculator shows exactly what you'll pay during and after the interest-only period, helping you understand if this loan type fits your financial situation.
An interest-only mortgage allows you to pay only the interest for an initial period (typically 5-10 years), after which the loan converts to a fully amortizing mortgage for the remaining term. During the IO period, your payment is significantly lower, but you're not building equity through principal payments. Once the IO period ends, you must pay both principal and interest over a shorter remaining term, resulting in substantially higher payments.
Interest-Only Payment Formula
IO Payment = Principal × (Annual Rate / 12)The biggest risk of IO loans is payment shock—the dramatic increase when you start paying principal. Calculate exactly how much your payment will jump so you can plan ahead.
IO loans typically cost more in total interest because you're not paying down principal early. See the true cost difference vs. a traditional amortizing loan.
IO loans work best with a clear plan: sell before IO ends, refinance, or prepare for higher payments. This calculator helps you understand all scenarios.
Real estate investors often use IO loans to maximize cash flow. Compare the interest savings vs. opportunity cost of investing the difference.
Maximize rental cash flow during the hold period. Plan to sell or refinance before the IO period ends. The lower payments improve debt-service coverage ratios.
If you're confident you'll sell within 5-7 years (job relocation, growing family), IO loans reduce your monthly outlay without long-term commitment.
Doctors, lawyers, and others with expected significant income growth may benefit from lower payments now, planning to handle higher payments later.
When buying a new home before selling the old one, IO loans minimize carrying costs during the transition period.
IO loans are more common for jumbo mortgages where monthly payments would otherwise be very high. They're often used for luxury properties.
Payment shock is the increase in your monthly payment when the IO period ends. For example, on a $500,000 loan at 7% with a 10-year IO period, your payment jumps from about $2,917/month to roughly $4,500/month—a 54% increase. This calculator shows your exact payment shock.