Interest-Only Calculator & Amortization Schedule

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Interest-Only (“I/O”) Loan Calculation

In order to calculate your monthly payments on an interest-only loan (whether it is for a period or the full term of the loan), you will need your starting loan balance, interest rate, the length of the interest-only period, the total term of the loan, and the amortization schedule after the interest-only period ends (if the loan isn’t full-term I/O). Once you have those items, you can input them into the calculator above to see your monthly payments (both during and after the I/O period) as well as your amortization schedule.

Advantages and Disadvantages of Interest-Only Loans

Advantages

• Monthly payments are lower than on an amortizing mortgage, which means lower property expenses overall.
• Mortgage interest tax write-off may be higher (which needs to be discussed and carefully structured with your personal tax representative).
• More disposable cash flow to put toward property improvements or the purchase of a new property.

Disadvantages

• The loan is not amortizing during the I/O period and therefore the loan balance remains unchanged during that period, meaning you are not building equity in your property unless the values are going up in that area.
• If you have a high loan balance in relationship to the value of your property and there is an economic downturn during your loan, it is possible that your mortgage balance may not be able to be refinanced at the end of your loan, either because the loan-to-value (“LTV”) is too high for available programs or, in the worst case scenario, the property is “underwater” (i.e. the loan balance is higher than what the property is worth).
• The debt doesn’t go away if it isn’t paid down; it’s just putting off the inevitable, and the loan will have to eventually be paid off or refinanced again.

Interest-Only Loan FAQs

Is an interest-only loan a good idea? An interest-only loan works best for very liquid borrowers that don’t need to pay down the principal balance because their property is already at a low LTV and they want the advantages of the excess cash flow in order to re-invest that money somewhere else at a rate of return that is better than the interest rate given.

How long can I have an interest-only loan for? This structure can last anywhere from one year to the full length of the loan term, depending on the loan program, property LTV, and borrower eligibility.

How do interest-only mortgages work? It is a structure in which the borrower only pays the lender the interest on their loan and makes no payments towards reducing their principal balance. For more information, please see above.

What is the monthly payment on an interest-only loan? The payments depend on several factors including interest-only period, interest rate, loan amount, and amortizing period (if any). Please see our calculator above in order to estimate your interest-only loan payments.