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Interest-Only Payment Calculator

Find the monthly interest-only payment.

How it is calculated

The monthly payment is one month of interest on the full loan balance:

payment = loan × annual rate / 1200

Dividing the percentage rate by 100 makes it a fraction and dividing by 12 makes it monthly, hence the 1200. loan is the amount borrowed and must be above zero, and rate is the nominal annual rate in percent (6.5 means 6.5 %); a 0 % rate is accepted and gives 0.00, a negative rate is not. No principal is repaid, so the balance stays the same and the payment never changes while the rate is fixed. The tool does not show what happens after the interest-only period, when the full balance still has to be paid, and it leaves out fees, taxes and insurance.

Worked example

A loan of 250,000 at 6.5 % per year.

  1. 250000 × 6.5 = 1,625,000
  2. 1,625,000 / 1200 = $1,354.17 a month

Over a year that adds up to about 16,250, and after all those payments the balance is still 250,000.

Try this example →

Common mistakes

  • Entering the rate as a decimal such as 0.065: the field takes percent, so 0.065 would mean 0.065 % and the payment would look about a hundred times too small.
  • Thinking the loan is shrinking: with interest-only payments the balance does not fall, and a large payment or a switch to amortization is still due later.
  • Comparing it with a repayment loan on the monthly figure alone: the interest-only payment is lower because it pays nothing toward the balance, so the total cost over the life is usually higher.
  • Forgetting that a variable rate changes the payment: the figure is valid only for the rate you entered.

Sources

About this calculator

An interest-only payment covers just the interest accrued on a loan for that period — principal × annual rate (in percent) ÷ 1200 for a monthly figure — with none of the balance paid down, so the loan amount stays exactly the same until the interest-only period ends or a lump-sum payment is made.

Commercial real estate and construction lenders commonly write interest-only terms during a project's build-out phase, when the borrower has no rental income yet to cover full amortization; bridge loans, some HELOCs, and a minority of residential mortgages use the same structure. Real estate investors and mortgage brokers use this calculator to compare the lower interest-only payment against what a fully amortizing payment would cost.

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Comments (1)

  • Editorial team

    The payment covers interest and nothing else, so the balance stays exactly where it was. A loan of 300,000 at 6 percent costs 1,500 a month, and when the interest-only period ends the principal still has to be repaid, usually over a shorter remaining term, so the payment is higher. Compare that future payment before committing. What loan size and period are you looking at?

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