What is an interest-only mortgage?

A mortgage where you pay only interest for an initial period (typically 5-10 years), then principal and interest for the remaining term. Monthly payments increase significantly when amortization begins.

What is payment shock?

The increase in monthly payment when the interest-only period ends. On a $500,000/6%/IO for 10 years then 20-year amortization: IO payment = $2,500; fully amortizing payment = $3,582 — a 43% increase.

Who should consider an interest-only mortgage?

Borrowers with irregular income (commissions, bonuses), real estate investors using short-term cash flow strategies, or those confident they will sell or refinance before the IO period ends.

Interest-Only Loan Period Cost Calculator

Calculate monthly payments during the interest-only period and the payment shock when full amortization begins. Shows total cost vs conventional amortizing loan.

Principal ($)

Annual Rate (%)

Years

Compounding / Year

$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How to Use

Enter the values for the scenario you are assessing. Calculate monthly payments during the interest-only period and the payment shock when full amortization begins. Shows total cost vs conventional amortizing loan. Use the interest-only period result to inform your calculation.

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Interest-Only Loan Period Cost Calculator

How to Use

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Frequently Asked Questions

What is an interest-only mortgage?

What is payment shock?

Who should consider an interest-only mortgage?