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Interest Only Calculator

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Interest-Only Loan Calculator

Calculate your monthly payments and compare with traditional loan options.

Calculate interest-only loan payments with our free calculator. Compare IO vs traditional loans, view payment schedules, and plan your finances effectively.

Interest-Only Loan Calculator Documentation

What Is It?

An Interest-Only Calculator helps borrowers understand payment schedules for loans where they only pay interest for an initial period (typically 5-10 years), followed by principal+interest payments. Perfect for real estate investors and financial planners.

Key Features

  • Calculates monthly payments during interest-only period
  • Projects payment adjustment after IO period ends
  • Compares with traditional amortizing loans
  • Visualizes payment schedule with interactive charts

Calculation Formulas

Interest-Only Payment:

Monthly Payment = Loan Amount × (Annual Interest Rate / 12)

Post-IO Payment (if amortizing):

Payment = P × [r(1+r)^n] / [(1+r)^n-1]
Where:
P = Loan Amount
r = Monthly Interest Rate (Annual Rate / 12)
n = Remaining Months in Term

How to Use

  1. Enter Loan Details: Amount, interest rate, IO period (years), total term
  2. Select Repayment Type: Choose between amortizing or balloon payment after IO period
  3. View Results: See payment breakdown, total interest, and comparative charts
  4. Adjust Parameters: Modify values to explore different scenarios

Frequently Asked Questions

Q: Who benefits from interest-only loans?
A: Investors seeking lower initial payments, borrowers expecting future income growth, or those planning to sell/assets before principal payments begin.

Q: What happens when the IO period ends?
A: Payments typically increase significantly as you start paying principal (amortizing) or face a balloon payment.

Q: Are interest-only loans risky?
A: They can be if property values decline or income doesn’t increase as expected. Carefully consider your repayment capacity.

Terminology Explained

  • Interest-Only Period: Initial loan phase where only interest is paid
  • Amortizing Loan: Traditional loan with principal+interest payments throughout
  • Balloon Payment: Lump-sum principal due at loan maturity
  • Debt Service: Total periodic loan payments (principal + interest)
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