Interest-Only Formula Explained
The math behind the Interest-Only Calculator: the equation, the variables, and the assumptions it makes.
By Onias Derilus, Mortgage Capital · NMLS# 1859012 · Last Updated: June 2026
It estimates payments on an interest-only mortgage during the interest-only period and the higher fully-amortizing payment that begins once principal repayment kicks in.
The Formula
IO payment = balance × rate / 12; later payment amortizes over remaining term
Interest-only payments are lower because they do not reduce the balance. The catch is that when the interest-only period ends, the same balance must be repaid over fewer remaining years, which raises the payment sharply.
These loans suit borrowers with irregular income or a clear plan to sell, refinance, or pay a lump sum before the payment jumps. The calculator shows both payment levels so the step-up is visible.
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Rates are illustrative only. APR and payments vary by credit score, loan amount, and market conditions. Subject to credit approval. Not a commitment to lend. NMLS# 1859012. Equal Housing Lender.