Interest-Only Loan with Extra Payments
Even on an interest-only loan, voluntary principal payments can save you tens of thousands in interest. Calculate the impact of extra payments here.
✓ See savings from extra principal
✓ Reduce payment shock at IO end
✓ Compare with/without extra payments
Interest-only note calculator
Calculate IO payments and balloon balance at maturity.
$
%
Monthly IO payment
$1,562.50
Balloon due at maturity: $250,000.00
Total interest over term: $93,750.00
Total paid (interest + balloon): $343,750.00
Annual interest
$18,750.00
Total payments
60
Why Make Extra Payments on an IO Loan?
Interest-only loans don't require principal payments, but that doesn't mean you can't make them. Voluntarily paying down principal during the IO period is one of the smartest moves you can make.
Impact of Extra Monthly Payments
| Extra/Month | Balance After 5yr IO | Interest Saved |
|---|---|---|
| $0 (IO only) | $300,000 | — |
| $200 | $288,000 | ~$4,200 |
| $500 | $270,000 | ~$10,500 |
| $1,000 | $240,000 | ~$21,000 |
Based on $300,000 loan at 7% with 5-year IO period. Approximate figures.
Benefits of Extra Principal Payments
- Lower total interest: Every dollar of principal you pay reduces future interest charges
- Smaller payment shock: A lower balance means a lower amortizing payment when the IO period ends
- Build equity faster: You're building ownership in the property instead of just renting money
- Flexibility: Unlike a fully amortizing loan, extra payments on IO loans are voluntary—you can skip them if cash is tight
Frequently Asked Questions
Can I make extra payments on an interest-only loan?\u25BE
Yes. Most IO loans allow voluntary principal payments that reduce the balance and future interest.
How much do extra payments save on an IO loan?\u25BE
Even $200/month extra on a $300,000 IO loan at 7% saves over $50,000 in total interest over the life of the loan.