How to use the Interest-Only Loan Payment Calculator
Enter the loan amount and the annual interest rate as a percentage. The result is the monthly interest you pay while the balance stays the same.
Worked example
A $200,000 loan at 6% costs 200,000 × 6 ÷ 1,200 = $1,000 a month in interest only. A standard 30 year repayment loan at the same rate costs about $1,199 a month, but each payment also cuts the balance. After five interest-only years you still owe the full $200,000.
What to watch for
When the interest-only period ends, payments jump because the full balance must then be repaid over fewer years. Interest-only loans can make sense for investors or short-term bridging, but check what the payment will be afterwards and whether you could afford it if rates rise.
The formula
Monthly interest = principal × annual rate ÷ 1,200.
Examples
- 1,000 at 5%
Monthly interest-only payment: 4.17
- 300,000 at 6.25%
Monthly interest-only payment: 1,562.5
- 75,000 at 8%
Monthly interest-only payment: 500
Limitations and assumptions
Covers the interest-only period. It does not include fees, insurance or the higher payments that start once you begin repaying the principal.
Frequently asked questions
How is the interest-only payment calculated?
Principal × annual rate ÷ 12.
What happens at the end?
The balance remains, so payments rise when amortization starts or a balloon is due.
Who uses interest-only loans?
Investors, bridging finance and some home equity lines.
How does it compare with a normal loan?
The payment is lower, but you build no equity during the interest-only years.