Interest-Only Loan Calculator
Calculate the monthly interest payment for an interest-only loan.
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Use this Interest Only Loan Calculator calculator for quick, clear estimates. Try a tiny example to see the impact of each input.
Frequently Asked Questions
Q: What is an interest-only loan?
An interest-only loan is a type of loan where, for a specified period, the borrower only pays the interest accrued on the principal balance, without paying down the principal itself. This results in lower initial monthly payments.
How does an interest-only mortgage work?
With an interest-only mortgage, your monthly payments for an initial period (e.g., 5-10 years) only cover the interest on the loan. After this period, the payments typically increase significantly as you then start paying both principal and interest, or you may need to refinance.
What are the pros and cons of an interest-only loan?
Pros include lower initial monthly payments and increased cash flow. Cons include a lack of equity build-up during the interest-only period, a larger principal balance remaining, and potentially much higher payments later on.
Do interest-only loans build equity?
No, during the interest-only period of the loan, you do not build equity through your payments because you are not paying down the principal balance. Equity can only be built if the property appreciates in value.