Interest-only vs amortizing loan calculator.

How it is calculated

Rates are compounded monthly. A fully amortizing loan has a level payment that clears the balance at the end of the term. Interest-only then amortizing pays only the monthly interest (amount × rate ÷ 12) for the interest-only period, then a level payment that amortizes the full balance over the remaining months, so the later payment is higher. Interest-only with a balloon pays interest every month and the whole principal is due at the end of the term. Total interest is the sum of the interest paid.

Worked example

$1,000,000.00 at 7% over 10 years: fully amortizing is $11,610.85 a month with $393,301.75 of interest. Two years interest-only is $5,833.33 a month at first, then $13,633.72, costing $55,535.09 more interest. Interest-only for the whole term is $5,833.33 a month with $700,000.00 of interest and a $1,000,000.00 balloon due at the end.

Sources and limits

The payment is the standard annuity formula; no lender data or market rate is used. Real commercial loans may compute interest on actual days, charge fees, reprice after a fixed period or have prepayment terms, all of which change the numbers. Interest-only periods and balloons are set in your loan agreement. See the commercial loan calculator for Canada for a single-loan schedule with an interest-only period and balloon.

FAQ

Is an interest-only loan cheaper?

The payment is lower while it is interest-only, but you pay more total interest because the balance does not fall, and the payment rises or a balloon comes due later.

What happens when the interest-only period ends?

The loan starts to amortize over the remaining months, so the payment steps up. The page shows the size of the jump.

What is a balloon payment?

The balance still owed at the end of the term, due in one payment. On a fully interest-only loan it is the whole principal.

Is interest compounded monthly here?

Yes, the monthly rate is the annual rate divided by 12.