How to Calculate Interest-Only Loan Payments and the Final Balloon

 

An interest-only loan payment covers interest without reducing the borrowed principal. This can make the regular payment smaller than an amortizing payment, but the original balance still needs to be repaid. To understand the cost, look at both the monthly interest and what happens when the interest-only period ends.

The Interest-Only Loan Calculator estimates fixed monthly interest, total interest and a final principal balloon. It assumes the full principal is repaid with the last monthly interest payment. It does not model a later amortizing repayment phase.

Calculate the monthly interest payment

For a fixed nominal annual interest rate divided into twelve equal monthly periods, use monthly interest = loan amount x (annual interest rate / 100) / 12. The principal stays constant because each payment covers only interest.

For a loan of 250000 at 6.5 percent annually, monthly interest before rounding is 250000 x 0.065 / 12 = 1354.166666... . This calculator rounds each monthly interest payment to two decimal places, producing 1354.17.

Enter the example in the calculator

Enter Loan amount 250000, Annual interest rate (%) 6.5 and Interest-only period (months) 60. Select Calculate interest-only loan.

The result shows Monthly interest payment 1354.17 and Total interest over the period 81250.20. All money values use the same currency and assume two decimal places. Enter amounts without thousands separators and use a period for decimals.

Calculate total interest and the balloon

Total interest equals the rounded monthly interest payment multiplied by the number of months. Here, 1354.17 x 60 = 81250.20. No part of those interest payments reduces the principal, so Principal balloon due at the end remains 250000.00.

The balloon is the principal lump sum, not an additional interest charge. This repayment model requires a separate plan for that amount. A future sale or refinancing may be possible, but the calculation does not assume either will be available or sufficient.

Distinguish the final payment from total paid

The Final payment including last month's interest combines the principal with one monthly interest payment: 250000 + 1354.17 = 251354.17.

Total paid including principal is 250000 + 81250.20 = 331250.20. That total already includes the balloon once. It can also be checked as 59 regular payments of 1354.17 plus the combined final payment of 251354.17. Do not add the final payment to a total that already includes principal and all monthly interest.

Check the rate and rounding assumptions

The input rate is a nominal annual interest rate, not an APR that includes fees. The calculator divides that rate by twelve. Daily accrual, actual calendar days, effective annual rates and rate changes can produce different charges.

Monthly interest is rounded half up to the nearest cent before calculating total interest. A lender that retains fractional cents or adjusts the final charge may produce a slightly different total. At zero interest, interest payments are zero but the principal remains due. Very small positive rates can also round to zero monthly interest; the tool flags that case.

Understand what is excluded

The estimate assumes no extra principal payments, missed payments or interest added to the balance. Taxes, insurance, origination fees, late fees and early repayment charges are excluded. It does not assess affordability or borrowing eligibility.

Some contracts switch to amortizing payments after an introductory interest-only period. Those later payments depend on the remaining balance, repayment term and applicable rate. This calculator instead models a balloon at the end, so check your actual contract before applying its results.

For a loan repaid through regular principal-and-interest installments, use the Mortgage Payment Calculator. Compare the complete repayment structure and charges rather than only the initial monthly payment.