This interest only mortgage calculator helps you estimate your monthly interest only payment compared to a normal monthly payment and see if it is cost effective, check its overall costs, advantages and disadvantages. Everything you need to know about this product’s scheme and its calculations is explained below the form.

Mortgage amount:*
Mortgage term:*
Annual interest rate:*
Interest only period:

How does this interest only mortgage calculator work?

This is a personal finance tool that allows you simulate the monthly payments and total interest paid in case of an interest only mortgage compared to a normal one.

Its algorithm is based on the formulas explained in the next lines:

  • Interest only monthly payment = IMP

IMP = A*C/1200 

  • Normal monthly payment (principal + interest) = MMP

 MMP = A*(C/1200)/(1-(1+C/1200)^(-(B*12)) )

  • Scenario of an interest only mortgage

- Number of monthly interest only payments = NIO

NIO = D*12

- Total interest paid = OIP


- Number of normal monthly payments left to be made (apart from IMP ones) = NMP

NMP = (B-D)*12

- Normal monthly payment= MML

MML = A*(C/1200)/(1-(1+C/1200)^(-12*(B-D)) ) 

- Total interest paid = TIP

TIP = [OIP + (MML*(B-D)*12)]-A

- Total paid = TPP

TPP = OIP + (MML*(B-D)*12)

  • Scenario of a standard mortgage

- Number of monthly payments (principal + interest) = SSP

SSP = B*12

- Total interest paid = TSS


- Total paid = TTT



A = Mortgage loan amount

B = Mortgage term

C = Annual interest rate

D = Interest only period

This interest only mortgage calculator returns all the information needed which consist in these details:

  • The value of the monthly payments for both scenarios (normal vs. interest only);

  • Total paid and the total paid on interest in both cases;

  • A conclusion after the comparison between all these figures that aims to explain which option is desirable.

Example of a result

Let’s assume an individual wants to see the simulation of a mortgage with these conditions: amount borrowed $200,000 with a term of 25 years, an annual interest rate of 4.9%, while the period for interest only is 5 years. These are the results:

■ Interest only monthly payment = $816.67.

■ While a normal monthly mortgage payment (principal + interest) is $1,157.56.

■ In case of a desired interest only period of 5 years the comparison between such an interest only loan versus a standard mortgage is detailed below:

  Scenario of an interest only mortgage

  - Number of monthly interest only payments = 60

  - Interest only monthly payment = $816.67

  - Total interest only paid = $49,000.00

  - Number of normal monthly mortgage payments left to be made (apart from interest only payment) = 240

  - Normal monthly mortgage payment = $1,308.89

  - Total interest paid in case of an interest only mortgage = $163,133.14

  - Total paid in case of an interest only mortgage = $363,133.14

  Scenario of a standard mortgage

  - Number of standard monthly mortgage payments (principal + interest) = 300

  - Monthly mortgage payment (principal + interest) = $1,157.56

  - Total interest paid = $147,267.17

  - Total paid = $347,267.17


  - In case of a standard mortgage you will pay less interest than in case of an interest only loan. The total savings in interest you can make are estimated to be of = $15,865.98

  - The main advantage of an interest only loan is that it allows you have a small monthly payment for the first 5 years

What is the scheme of the interest only mortgage?

Generally speaking there are two types of mortgages:

  • The most common type is called the standard repayment mortgage where the regular payments (usually with a monthly frequency) consist of two parts from the beginning: principal and interest.

  • The least common type is called the interest only mortgage where the regular payments for a fixed number of years as agreed, consist only in the interest. Practically during the term of an interest-only mortgage, your payments go towards repaying the cost of the money borrowed, then according to the repayment plan agreed with your lender you are going to payout the cash taken initially.

Below, we’ll explain in depth the scheme of an US interest only mortgage which typically has a term of five or ten years (up to this limit) allocated to pay off the money’s cost. After this period, the principal should be paid back according with the amortization schedule negotiated with the lender. For instance, let’s assume someone borrows by interest only scheme, an amount of $300,000 taken over a period of 30 years, from which the first 10 years is the period to pay the interest. That means after the first 10 years in which the borrower paid out only the interest, him has to payout the principal of $300,000 over the remaining period of 20 years. All the other details of such calculation can be seen by using this interest only mortgage calculator.

3 Advantages...

  • The regular payments within the interest only period are substantially lower than the monthly payments in case of a standard mortgage, or even compared to the later payments the borrower has to pay. This is the main advantage from the borrower’s perspective.

  • It offers a more flexible and affordable amortization schedule as the borrower is not forced from the start to make payments towards principal, while his  monthly income can grow over the payout period.

  • It may prove a positive choice in case you have enough reasons to believe that the average interest rate will significantly go up in few years, compared to the level you will pay within the interest only period.

3 Disadvantages...

  • As the risk for the lender is somewhat higher, the interest rate is slightly higher in comparison with a regular mortgage. As a consequence, the overall paid that goes towards interest is higher than in case of a standard mortgage.

  • A well in advance plan to prepare the funds required to payout the principal borrowed should be put in place, otherwise the borrower may struggle to switch mortgages if the interest rate increases.

  • It may prove inefficient from financial point of view in case over the fixed period for interest only payments, the rate is higher than the average annual interest rate paid over the entire term in case of a normal loan.

16 Jan, 2015