Interest-Only Mortgage Balloon Calculator
Interest-only mortgages skip principal during a 5-10 year window — low payments now, balloon-sized recast later. This calculator shows your IO payment, the post-IO recast, and lifetime cost vs a standard amortizing loan.
| Standard amortizing payment (full term) | — |
| IO period total paid | — |
| Principal balance entering amort phase | — |
| Total paid over loan life | — |
| Total paid — standard amortizing | — |
| Extra cost of going IO | — |
Interest-only (IO) mortgages defer principal repayment for 5-10 years, dropping the monthly payment by 20-40%. After the IO period ends, the loan recasts and amortizes the full principal over the remaining term — creating a payment jump that catches borrowers off guard.
How IO Mortgages Work
During the IO period you pay only the interest accrued each month (loan balance × monthly rate). The principal stays flat. When the IO window ends, the loan recasts to amortize the same principal over fewer remaining years, spiking the payment 30-50% in many cases.
The Balloon Risk
Some IO loans have a true balloon — the full principal is due at the end of the IO period. Borrowers must refinance, sell, or pay cash. If rates rose or home value dropped, refinance may not be possible, forcing a distressed sale.
Who Uses IO Mortgages
Best for: high-income borrowers with lumpy income (bonuses, business owners), investors planning to sell before recast, jumbo borrowers maximizing tax-deductible interest, and ARM borrowers paying down via lump sums.
Regulatory Caution
Per CFPB, IO loans are 'non-qualified mortgages' (non-QM) and fall outside QM safe harbor protections. Lenders must verify ability to repay at the recast rate. Many IO loans require 720+ FICO and 25% down.
Last updated May 2026. Sources: CFPB QM Rule, IRS Pub 936.