This Interest-Only Loan Calculator helps you quickly determine your monthly interest payments, yearly interest costs, and total interest owed during an interest-only period. Whether you’re evaluating a mortgage, investment property loan, or short-term interest-only arrangement, this tool makes the math simple and clear.
Interest-only loans allow borrowers to pay only the interest for a set number of years, resulting in lower initial monthly payments. However, because the principal does not decrease during this period, understanding the total cost of interest is essential for financial planning.
This calculator provides instant, accurate results to help you compare loan options, estimate costs, and make informed decisions.
How to Use the Interest-Only Loan Calculator
Follow these simple steps to get your interest-only payment amount:
1 Enter your loan amount
This is the total amount borrowed (e.g., 250000).
2 Enter your annual interest rate
Use the exact percentage charged by your lender (e.g., 7.5%).
3 Enter the interest-only period in years
This is how long you will pay interest only (e.g., 5 years).
4 Click “Calculate Payment”
The tool instantly calculates:
- Monthly interest-only payment
- Yearly interest cost
- Total interest paid during the interest-only period
5 Adjust values to compare loan options
Try different interest rates, terms, or loan amounts to see how they impact your total interest cost.
How the Calculation Works
Interest-only loans use simple interest during the interest-only period.
Monthly Interest Rate
r=12×100Annual Rate
Monthly Interest-Only Payment
Payment=Loan Amount×Monthly Rate
Total Interest Over Entire Period
Total Interest=Monthly Payment×(Years×12)
Example Calculation
If your loan amount is $250,000, interest rate 7.5%, and interest-only period 5 years:
- Monthly interest-only payment = $250,000 × 0.075 / 12 = $1,562.50
- Yearly interest cost = $1,562.50 × 12 = $18,750
- Total interest over 5 years = $18,750 × 5 = $93,750
The calculator performs all these steps instantly for you.
Why Use This Interest-Only Loan Calculator?
This tool helps you:
- Understand your minimum monthly payment during the interest-only phase
- Calculate total interest cost before the principal begins
- Compare loans with different rates or terms
- Plan budgets for investment properties or short-term financing
- Avoid unexpected financial surprises
Clear calculations lead to better decisions.
Frequently Asked Questions (FAQ)
1. What is an interest-only loan?
An interest-only loan allows the borrower to pay only the interest for a set period. The loan principal does not decrease until regular payments begin.
2. How does this calculator work?
It multiplies your interest rate and loan amount to compute your monthly interest-only payment, yearly interest cost, and total interest for the chosen period.
3. Does this calculator include principal payments?
No. It calculates interest-only payments only. After the interest-only period ends, principal repayment begins.
4. Is an interest-only loan risky?
It can be. Payments start low but rise later when principal payments begin. It’s important to know your full costs ahead of time.
5. Why would someone choose an interest-only loan?
Common reasons include lower initial payments, real estate investing, cash flow management, or short-term ownership.
6. Can I use this for mortgages and business loans?
Yes — this calculator works for any interest-only loan, including mortgages, investment property loans, and business financing.
