Interest-Only Payment Calculator
An interest-only payment is the monthly amount needed to cover just the interest on a loan, with nothing applied to the principal. It is the lowest payment that keeps a loan from growing, and it appears in interest-only mortgages, construction loans, lines of credit and bridge financing. Because no principal is repaid, the balance stays flat for as long as you make interest-only payments, and the full amount remains due later. This calculator takes the loan balance and the annual interest rate and returns the interest-only monthly payment, computed as the balance times the monthly rate. Enter a 200,000 dollar balance at 6.5 percent and the tool returns about 1,083.33 dollars per month. Seeing this figure helps you compare an interest-only option against a fully amortizing one: the interest-only payment is lower, but you build no equity and face a larger obligation when principal repayment begins. Trying different rates also shows how sensitive an interest-only payment is to rate changes, which matters most when the rate is variable. Because the calculation is a single multiplication, every figure is computed deterministically. The complete formula and a worked example that reconciles exactly to the calculator above appear in full below.
An interest-only payment covers only the month's interest: payment = balance x annual rate / 12. A $200,000 balance at 6.5% costs $1,083.33 per month, and none of it reduces the principal.
Interest-only payment formula
interest-only payment = balance x (annual rate / 12)
balance = current loan balance
annual rate / 12 = monthly interest rate (as a decimal)
The payment equals the balance multiplied by the monthly rate, which is the annual rate divided by 12. Because no principal is included, the balance is unchanged from month to month.
Worked example
A loan balance of 200,000 dollars at a 6.5 percent annual rate, interest-only.
- Monthly rate = 6.5% / 12 = 0.0054167
- Interest-only payment = 200,000 x 0.0054167
- = 1,083.33 dollars per month
- Principal repaid each month = 0, so the balance stays at 200,000
These are the calculator's default inputs, so the result above matches the widget exactly.
Interest-Only Payment Calculator: frequently asked questions
What is an interest-only payment?
It is a payment that covers only the interest accruing on a loan, with nothing applied to principal. The balance stays the same, so the full amount remains due later. It is the smallest payment that stops a loan from growing.
How is it calculated?
Multiply the loan balance by the monthly interest rate, which is the annual rate divided by 12. For a 200,000 dollar balance at 6.5 percent, that is 200,000 times 0.0054167, or about 1,083.33 dollars per month.
When are interest-only payments used?
They appear in interest-only mortgages, construction loans, bridge loans and lines of credit. They keep early payments low, but because no principal is repaid, the borrower must repay or refinance the full balance later.
Why is the interest-only payment lower than an amortizing one?
An amortizing payment includes principal so the loan shrinks over time, which makes it larger. An interest-only payment excludes principal, so it is lower but builds no equity and leaves the full balance outstanding.
What are the risks?
You build no equity and face a larger payment or a lump sum later. The US Securities and Exchange Commission's Investor.gov urges borrowers to understand how payments change over the life of a loan before choosing interest-only terms.
Official sources
- Loans, interest and borrowing basics: US Securities and Exchange Commission, Investor.gov. As at 25 June 2026.
Reviewed by the CalculatorHub team, edited by James Graham, 25 June 2026. See our methodology. This is general information, not financial, tax, legal or investment advice.