Interest-Only Loan Calculator
Interest-Only Loan Calculator
The monthly payment while you pay only interest, the EMI when repayment starts, how big the jump is, and what the interest-only years add to the total against a loan repaid from day one.
Interest-only loan
A loan of $50,00,000 at 8.5%, interest only for 24 months, then EMIs for 18 years
Interest-only payment, then the EMI
EMI = P × r ÷ [1 − (1 + r)−n]
Payment shock = EMI ÷ (P × r) − 1
- P
- the loan, which is still owed in full when the interest-only period ends
- r
- the monthly rate: annual rate ÷ 12 ÷ 100
- n
- the months of EMIs after the interest-only period. The comparison loan is amortised over the interest-only months plus n.
Worked example
A loan of $50,00,000 at 8.5%, interest only for 24 months, then EMIs for 18 years
r = 8.5 ÷ 1200 = 0.007083; interest-only payment = 50,00,000 × r = $35,417 a month
n = 18 × 12 = 216; (1 + r)−216 = 0.2177
EMI = 50,00,000 × 0.007083 ÷ (1 − 0.2177) = $45,273, 27.8% more than the interest-only payment
Total interest $56,28,941, against $54,13,879 with an EMI of $43,391 from month one over the same 20 years: $2,15,062 more
50 lakh at 8.5% over 20 years in all: the longer the interest-only period, the bigger the jump
| Interest-only period | EMI afterwards | Payment shock | Total interest | Extra interest |
|---|---|---|---|---|
| None | $43,391 | 22.5% | $54,13,879 | $0 |
| 12 months | $44,272 | 25.0% | $55,19,080 | $1,05,201 |
| 24 months | $45,273 | 27.8% | $56,28,941 | $2,15,062 |
| 36 months | $46,415 | 31.1% | $57,43,579 | $3,29,701 |
| 60 months | $49,237 | 39.0% | $59,87,656 | $5,73,777 |
How an interest-only period works — and what it costs
In an interest-only period you pay each month’s interest and nothing else, so you still owe the whole loan when it ends. Then the loan has to be repaid in fewer years than if you had started at once, so the EMI is higher than both the interest-only payment and the EMI of an ordinary loan over the same total term. The jump is often called payment shock. In the example the payment rises from $35,417 to $45,273 a month, 27.8% more.
In India the commonest version is pre-EMI on a home under construction: the bank releases the loan in stages, you pay interest on what has been drawn, and full EMIs start at possession. Some products build in an interest-only moratorium and then step the EMI up. This page assumes the whole loan is drawn on day one and the EMI is level afterwards, so for a staged loan it overstates the interest-only payments early on; the EMI once repayment starts is the same once the whole loan has been drawn.
What it costs. Because nothing is repaid during the interest-only months, interest is charged on the full loan for longer. Over the same 20 years the example pays $2,15,062 more interest than a loan amortised from the start. In today’s money the gap is smaller, since the lower payments come first and inflation erodes the later ones, but it does not go away at these rates. The chart shows both balances: flat, then falling, against a steady fall from month one.
The risk. America’s Consumer Financial Protection Bureau warns borrowers not to count on selling or refinancing before the higher payments begin, and to consider another loan if they could not afford them on today’s income. If the rate is floating, a rise during the interest-only years makes the jump bigger still. Check the full EMI with the EMI calculator and whether it fits your income with the loan affordability calculator. Paying something off during the interest-only months cuts both the EMI and the interest; the loan prepayment calculator shows how much. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
How is the interest-only payment calculated?
Loan × annual rate ÷ 12. $50,00,000 at 8.5% is $35,417 a month. It never reduces the loan.
What is payment shock?
The rise in the monthly payment when the interest-only period ends and EMIs begin. In the example the EMI is $45,273, 27.8% above the interest-only payment.
Does an interest-only period cost more?
Yes, at any interest rate above zero: the whole loan earns interest for longer. Over the same 20 years the example pays $2,15,062 more interest than a loan repaid from the start.
Is pre-EMI the same as an interest-only loan?
Much the same idea: interest only on the amount drawn while a home is being built, full EMIs from possession. Pre-EMI payments do not reduce the loan.
Related calculators
References
- Consumer Financial Protection Bureau. What is an “interest-only” loan? (Ask CFPB, updated 13 September 2024): after the interest-only period you pay the balance, refinance, or begin monthly payments “which are higher than the interest-only payments”; do not assume you can sell or refinance.
- State Bank of India. SBI Flexipay Home Loan (web page, consulted 22 September 2026): borrowers “pay only interest during the moratorium (pre-EMI) period, and thereafter, pay moderated EMIs”, stepped up in later years. Cited for the structure only.
- Reserve Bank of India. Key Facts Statement (KFS) for Loans & Advances. RBI/2024-25/18, DOR.STR.REC.13/13.03.00/2024-25, 15 April 2024: the Annual Percentage Rate (APR) is “the annual cost of credit to the borrower which includes interest rate and all other charges”; its illustration computes APR on the net disbursed amount by the IRR approach (20,000 at 15% for 24 months with 400 of fees: 17.07%); fees not in the KFS cannot be charged without the borrower’s explicit consent.
- Brealey RA, Myers SC, Allen F. Principles of Corporate Finance. McGraw-Hill. The present value of an annuity, from which the level-payment loan formula, its balance after any number of payments and its inverse for the number of payments follow.
- Central-bank inflation targets used as default inflation by currency: Reserve Bank of India (4% CPI, flexible inflation targeting framework); U.S. Federal Reserve (2% PCE); European Central Bank (2%); Bank of England (2% CPI); Bank of Canada (2%); Reserve Bank of Australia (2–3%); Bangko Sentral ng Pilipinas (3% ± 1). Actual inflation often runs above target.