Interest-Only Note Calculator
Calculate interest-only payments and the balloon balance due at maturity. Enter your loan amount, rate, and term to see instant results with a full payment schedule.
Interest-only note calculator
Calculate IO payments and balloon balance at maturity.
How interest-only notes work
An interest-only note requires the borrower to pay only interest for the duration of the loan. The principal remains untouched, and the full amount is due as a balloon payment when the note matures.
The formula is simple:
For example, a $250,000 loan at 7.5% paid monthly: $250,000 × (0.075 ÷ 12) = $1,562.50 per month.
Over a 5-year term (60 payments), total interest paid = $1,562.50 × 60 = $93,750. At the end of month 60, the borrower owes the full $250,000 balloon.
Who uses this calculator
Real estate investors
Maximize cash flow during a hold period by paying only interest, then refinance or sell.
House flippers
Keep carrying costs low on short-term acquisition loans where the property will be sold quickly.
Bridge-loan borrowers
Manage payments on temporary financing while waiting for permanent funding.
Commercial buyers
Evaluate IO periods offered by commercial lenders before amortization begins.
Financial planners
Show clients the cost difference between IO and fully amortizing loan structures.
Students & educators
Understand loan mechanics with clear, step-by-step IO payment calculations.
⚠ Financial disclaimer
This calculator provides estimates for educational and planning purposes only. It is not financial advice. Actual loan terms, fees, and tax implications vary. Consult a licensed financial professional before making borrowing decisions.
Frequently asked questions
What is an interest-only note?
An interest-only (IO) note is a loan where the borrower pays only interest during the IO period and owes the full principal as a balloon payment at maturity. No principal is paid down during the interest-only term.
How is the IO payment calculated?
IO Payment = Principal × (Annual Rate / Payments per Year). For example, a $250,000 loan at 7.5% paid monthly: $250,000 × (0.075 / 12) = $1,562.50 per month.
What happens when the IO period ends?
At the end of the IO period, the full principal balance (the original loan amount) is due as a balloon payment. Borrowers typically refinance, sell the asset, or convert to a fully amortizing loan before that date.
Who typically uses interest-only loans?
Real estate investors (to maximize cash flow during a hold period), borrowers expecting future income increases, house flippers, commercial property buyers, and bridge-loan borrowers commonly use IO notes.
Is any principal paid during the interest-only period?
No. By definition, the borrower pays only interest. The loan balance remains equal to the original principal throughout the IO period. Some loans allow optional principal payments, but none are required.
How does payment frequency affect total interest?
With simple-interest IO loans, the total interest over the term is the same regardless of frequency (monthly, quarterly, or annual) because the principal never changes. The per-period payment amount adjusts proportionally.
What are the risks of interest-only loans?
The primary risk is the balloon payment: if you cannot refinance or sell at maturity, you must repay the full principal. Additionally, you build no equity through amortization, and if property values decline, you may owe more than the asset is worth.
Are interest-only payments tax-deductible?
Interest paid on mortgage debt may be tax-deductible subject to IRS limits ($750,000 for loans after Dec 2017). Consult a tax professional for your specific situation. This calculator does not provide tax advice.