How do you calculate an interest-only payment?

Payment = loan balance × interest rate per period. For a monthly payment, loan × annual rate ÷ 12.

What happens when the interest-only period ends?

The loan starts to amortize over the remaining term, so the payment rises to L × r ÷ [1 − (1 + r)−(remaining payments)].

Do interest-only loans cost more?

Usually yes in total interest, because the balance stays high for longer.

Does an interest-only payment reduce the balance?

No. Only payments above the interest charge reduce the principal.

Interest-Only Loan Payment Formula

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Interest-Only Loan Payment Calculator

During the interest-only period of a loan, each payment covers just the interest, L × r, and the balance does not fall at all. When that period ends, the full loan must be repaid over the remaining term, so the payment jumps to the ordinary amortizing payment on the original balance with fewer payments left. Interest-only mortgages, construction loans and many investment property loans work this way.

Formula

P_IO = L × r after the interest-only period: P = L × r1 − (1 + r)^{−(n − n_IO)}

Where

P_IO: payment during the interest-only period
L: loan amount (unchanged during the interest-only period)
r: interest rate per period
n: total number of payments
n_IO: number of interest-only payments

Calculator

Loan amount

Annual interest rate (%)

Interest-only period (years)

Total loan term (years)

Payments per year

Result and step-by-step solution

Interest-only payment

1,500.00

Rises to 2,149.29 (+649.29) when principal repayment starts after 120 payments. Total interest 395,830.36 vs 347,514.57 on a fully amortizing loan.

Rate per period
r = 6% ÷ 12 = 0.005
Interest-only payment
P_IO = 300,000.00 × 0.005 = 1,500.00 for 120 payments
Amortizing payment afterwards
Remaining payments = 360 − 120 = 240; P = 300,000.00 × 0.0051 − (1 + 0.005)⁻²⁴⁰ = 2,149.29
Total interest
1,500.00 × 120 + 2,149.29 × 240 − 300,000.00 = 395,830.36

How to use the formula

The calculator shows the interest-only payment, the number of remaining payments, the higher payment that follows and the total interest over the life of the loan, and compares that with a loan that amortizes from day one. Seeing the jump in advance matters: it is the point where many borrowers find their budget stretched.

Take 300,000 at 6% over 30 years with the first 10 years interest-only. The payment is 1,500.00 for 120 months and then rises to 2,149.29 for the remaining 240 months, an increase of 649.29. Total interest is 395,830.36, compared with 347,514.57 on a fully amortizing 30-year loan whose payment would be 1,798.65 throughout. For other loan structures see the balloon payment formula.

Frequently asked questions

How do you calculate an interest-only payment?: Payment = loan balance × interest rate per period. For a monthly payment, loan × annual rate ÷ 12.
What happens when the interest-only period ends?: The loan starts to amortize over the remaining term, so the payment rises to L × r ÷ [1 − (1 + r)^{−(remaining payments)}].
Do interest-only loans cost more?: Usually yes in total interest, because the balance stays high for longer.
Does an interest-only payment reduce the balance?: No. Only payments above the interest charge reduce the principal.

Last reviewed: September 26, 2026. Calculations run in your browser and were checked against numpy-financial, SciPy and published spreadsheet examples.