Interest-Only Payment Calculator

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.

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.