Interest-Only Loan Calculator: Understand Payments & Risks
Our Interest-Only Loan Calculator shows monthly payments, total interest, and payoff timeline. Compare with amortizing loans. Add extra payments to reduce principal faster.
What is an Interest-Only Loan?
Pay only interest for initial period (5–10 years). No principal reduction. After, payments jump to amortize remaining balance.
Key Features
- Lower initial EMI: Interest only
- Payment shock: After IO period
- Extra payments: Reduce principal early
- Comparison: vs fully amortizing loan
How It Works
- Enter loan amount, rate, IO period, total term
- See interest-only EMI and amortizing EMI
- Add extra payments to save interest
- View full schedule and chart
Interest-Only vs Amortizing
| Type | Initial EMI | After 10 yrs | Total Interest |
|---|---|---|---|
| Interest-Only | $1,375 | $2,108 | $458,800 |
| Amortizing | $1,703 | $1,703 | $312,900 |
Example: $300K, 5.5%, 30-yr
Extra Payments Impact
$500 extra/month during IO period → reduces principal by $60K → lower amortizing EMI.
Pros
- Lower initial payments
- Cash flow for investments
- Flexibility for high earners
Cons & Risks
- No equity buildup
- Payment shock
- Higher total interest
- Refinance or sell needed if can't afford jump
When to Use
- Plan to sell before IO ends
- Expect income increase
- Invest the savings at higher return
Pro Tips
- Make extra payments to principal
- Plan for payment jump
- Refinance before IO ends
- Compare with Mortgage Loan
Conclusion
Interest-only loans offer flexibility but come with risks. Use our Interest-Only Loan Calculator to plan wisely. Explore more in Finance Calculators.