Interest-Only Mortgage Calculator
Estimate the low initial payments of an interest-only mortgage and prepare for the 'step-up' in cost when the principal repayment phase starts.
What is an interest-only mortgage?
An interest-only mortgage is a type of loan where the borrower is only required to pay the interest on the principal for a set period (usually 5 to 10 years). After this period, the loan typically converts to a standard amortizing loan where both principal and interest must be paid.
How are interest-only payments calculated?
During the interest-only period, the monthly payment is simply: (Loan Amount × Annual Interest Rate) ÷ 12. Since no principal is being paid down, the loan balance remains the same throughout this period.
What happens after the interest-only period ends?
Once the IO period ends, your monthly payment will increase significantly. You will begin paying both interest and the principal amount, but you will have fewer years left to pay off the balance, resulting in much higher monthly costs.
Who should consider an interest-only mortgage?
Interest-only loans are often used by investors who plan to sell the property quickly or individuals who expect their income to increase significantly before the amortization period begins. They carry higher risk if property values drop or income doesn't rise as expected.