Fixed Rate Mortgage vs. Interest Only Mortgage
Use this calculator to compare a fixed rate mortgage to Interest Only Mortgage.
How the fixed rate mortgage vs. interest only mortgage calculator works
It compares the fixed-rate amortizing payment with an interest-only payment, and calculates the equity the fixed loan builds over the interest-only period — the wealth you forgo by paying only interest.
Worked example: with loan amount of $350,000, interest rate of 6.50% and loan term (years) of 30, the fixed rate vs interest-only mortgage shows lower payment with interest-only of $316.40.
- Fixed payment
- $2,212.24
- Interest-only payment
- $1,895.83
- Monthly difference
- $316.40
- Equity given up
- $53,284
The formula
Fixed payment = P × r ÷ (1 − (1 + r)⁻ⁿ); interest-only = balance × monthly rate. Equity built = original balance − balance after the IO period.
Results are estimates for educational purposes and are not financial advice. Confirm exact figures with your lender, plan administrator or advisor.
Questions about the fixed rate mortgage vs. interest only mortgage
Is an interest-only mortgage cheaper?
The monthly payment is lower, but you build no equity, so it is not cheaper in the long run — you simply defer principal. The calculator shows the equity you give up.
Who should consider interest-only?
Borrowers with irregular income or a specific short-term plan who value low payments and will pay down principal voluntarily, sell, or refinance before the cost mounts.
What is the main downside?
No forced equity building, a payment jump when amortization starts, and reliance on home appreciation. If prices fall, you can owe more than the home is worth.
Is the Fixed Rate Mortgage vs. Interest Only Mortgage free to use?
Yes. Every calculator on FinCalculators is completely free, with no sign-up, login or paywall. You can run as many scenarios as you like.