Precision Utility
Interest Only Mortgage
Calculator
IO Period
5-10 yrs
Then Recasts
Full Amort
Calculate your monthly interest-only mortgage payment and see exactly what happens when the IO period ends. Most US interest-only mortgages let you pay just the interest for 5 to 10 years, then recast into a fully amortizing loan for the remaining term. This calculator shows both phases side by side so you can prepare for the payment jump.
Loan Parameters
Monthly IO Payment
$2,708.33
After IO Period
$3,793.25
Payment Jump
+$1,084.92
Total Interest
$573,070
Fully Amort /mo
$3,160.34
IO Period Interest
$162,500
Amort Period Interest
$410,570
IO Total Cost
$1,073,070
Full Amort Total Cost
$1,137,722
Payment shock ahead
After the 5-year interest-only period, your payment jumps from $2,708/mo to $3,793/mo — a 40% increase. The full loan balance of $500,000 must be repaid over the remaining 25 years.
How an interest-only mortgage works in the US
A US interest-only mortgage has two distinct phases. During the interest-only period — typically 5, 7, or 10 years — you pay only the interest on your loan each month. Your payment is simple to calculate: loan balance multiplied by the annual rate, divided by 12.
When the IO period ends, the loan recasts into a fully amortizing mortgage for the remaining term. Because you now have fewer years to pay off the entire principal, your monthly payment increases substantially. This is known as payment shock.
For example, a $500,000 loan at 6.5% over 30 years with a 5-year IO period means you pay $2,708 per month for the first 5 years. Then the loan recasts over the remaining 25 years, and your payment jumps to approximately $3,793 — a 40% increase.
Interest-only mortgages are most common in the jumbo loan market and are frequently paired with adjustable-rate mortgage (ARM) structures. They can be a smart tool for borrowers who expect rising income, plan to sell before the IO period ends, or want to maximize cash flow in the short term.
What you need to know about interest-only mortgages
Interest-only mortgages have evolved significantly since the 2008 financial crisis. The Dodd-Frank Wall Street Reform Act tightened lending standards, making IO loans a niche product rather than a mass-market option. Here's what you should know:
- Jumbo market focus — IO options are most widely available on jumbo loans (above the $766,550 conforming limit in most areas for 2025)
- Qualified Mortgage rules — IO loans generally don't meet QM standards, so they're offered as non-QM or portfolio products
- Higher rates — expect to pay 0.25-0.50% more than a comparable fully amortizing product
- Stronger borrower profile — lenders typically require higher credit scores (720+), lower LTV ratios, and larger reserves
- ARM combinations — many IO mortgages use adjustable rates (5/1 ARM, 7/1 ARM, 10/1 ARM), adding rate risk on top of payment shock
- Tax advantages — since IO payments are 100% interest, they may be fully deductible (subject to the $750,000 mortgage interest deduction limit)
- Optional principal payments — you can pay down principal during the IO period to reduce future payment shock
This calculator provides estimates for comparison purposes. For personalized mortgage advice, speak to a licensed loan officer. Rates and eligibility criteria vary between lenders.
Frequently asked questions
What happens when the interest-only period ends?
Your loan recasts into a fully amortizing mortgage for the remaining term. Because you now have fewer years to pay off the full principal, your monthly payment increases significantly. This payment shock can be substantial — often 40-100% higher than the IO payment.
How long is a typical interest-only period?
Most US interest-only mortgages offer IO periods of 5, 7, or 10 years. After this period, the loan converts to a fully amortizing schedule for the remaining term. Some jumbo lenders offer 3-year IO periods as well.
Are interest-only mortgages only for jumbo loans?
Interest-only options are most common in the jumbo mortgage market (loans above the conforming limit of $766,550 in most areas for 2025). Some portfolio lenders offer IO on conforming loans, but they are less widely available since the Dodd-Frank reforms.
Can I make principal payments during the interest-only period?
Yes. During the IO period you are only required to pay interest, but most loans allow optional principal payments without penalty. Making extra payments reduces your balance and lowers the payment shock when the IO period ends.
How does an interest-only mortgage affect my taxes?
Mortgage interest is generally tax-deductible on your primary residence up to $750,000 of mortgage debt. Since IO payments are entirely interest, 100% of your payment may be deductible during the IO period. Consult a tax professional for your specific situation.
What is payment shock on an interest-only mortgage?
Payment shock is the sudden increase in your monthly payment when the IO period ends and the loan begins amortizing. For example, a $500,000 loan at 6.5% over 30 years with a 10-year IO period jumps from $2,708/mo to $3,793/mo — a 40% increase. Plan ahead to absorb this jump.
How do I calculate my interest-only mortgage payment?
Multiply your loan amount by the annual interest rate, then divide by 12. For example, a $400,000 loan at 6.5% costs $400,000 x 0.065 / 12 = $2,166.67 per month during the IO period. Use the calculator above for an instant result with payment shock projections.