Does an interest-only period make the loan longer?

No, and this is the most commonly misremembered part. The loan still ends on the original date; the recast spreads the remaining balance over the months that are left, not over a fresh term. On a 30-year loan with 10 years interest-only, the recast payment is computed over 240 months, which is exactly why it is so much higher.

How much does the payment go up?

On 400,000 at 6.5% over 30 years with 10 years interest-only, from 2,166.67 to 2,982.29 — an increase of 815.62, or 37.6%. The percentage depends on how much of the term the interest-only period consumes: shortening it to 3 years brings the increase down to 21%, and on a 20-year loan with 5 years interest-only it is 48.3%.

What does the interest-only period actually cost?

In extra interest over the whole term, 65,571.34 in the default case — 575,751.15 against 510,179.81 for the same loan amortising from day one. The balance that would otherwise have been falling for a decade stands still while interest accrues on all of it, and that is the entire cost.

Why does the interest-only payment stay the same when I change the period?

Because it depends only on the balance and the rate — 400,000 × 6.5% ÷ 12 is 2,166.67 whether the period lasts three years or fifteen. That is the trap in how these loans are sold: the number shown is identical across every row of the table, while the number that decides what happens afterwards changes a great deal.

Can the interest difference ever be negative?

Yes, at the extremes of the rate and term ranges. At very high rates a normal amortising schedule barely reduces the principal either, so the deferral saves rather than costs. It is a real result of the comparison rather than a rounding artefact, and it is not an argument for borrowing at those rates.

Why is zero per cent rejected?

Because the increase has no denominator: if the interest-only payment is zero there is nothing to express the increase as a percentage of, and a 0% interest-only period is self-contradictory. The rate field starts at 0.01% for that reason.

What is not included?

Fees, closing costs, property taxes, insurance, and any rate difference between an interest-only loan and a fully amortising one. The comparison here holds the rate constant, which isolates the effect of the structure but is not how two real offers would differ. And no currency is attached to any figure.

Interest Only Mortgage Calculator

Result

2,166.67

Interest-only payment

Payment after the recast: 2,982.29
Increase when the payment steps up: 815.62
Increase (%): 37.6%
Interest during the interest-only period: 260,000.40
Interest after the interest-only period: 315,750.75
Total interest: 575,751.15
Total paid: 975,751.15
Months of amortisation: 240
Interest if fully amortising: 510,179.81
Interest saved by consolidating: 65,571.34

An interest-only mortgage does not give you a loan that lasts longer than the term you signed. It gives you a period at the front during which the payment covers interest and nothing else, and then a single recast in which the amortization of the remaining balance is spread over the remaining term. Everything that follows from that one sentence is on this page. Take 400,000 at 6.5% over 30 years with the first 10 years interest-only. The payment during the draw period is 2,166.67 a month, and after ten years the balance is still 400,000 because none of it was principal. At the recast the same balance is amortised over the 240 months that remain, so the payment becomes 2,982.29 — an increase of 815.62, or 37.6%, arriving on a date fixed at the outset. The word that matters is remaining: the recast does not restart a thirty-year schedule, because the loan still ends when it always would have. That is why the increase is so large, and it is also why shortening the interest-only period is not the same as extending the loan — moving it from 120 months to 36 cuts the recast payment to 2,622.22 and the increase to 21%. The last column of the answer is the one worth arguing about. Compared with paying the whole 30 years on a normal amortising schedule, the interest-only structure costs 65,571.34 more in the default case, because the balance that would otherwise have been falling for a decade is standing still while interest accrues on all of it. The table below moves the length of the interest-only period from 3 years to 15 and holds everything else fixed, which makes both the size of the recast and the cost of the deferral readable as a single dial.

400,000 at 6.5% over 30 years, by interest-only period

Interest-only months	Interest-only payment	Payment after recast	Amortising months	Extra interest
36	2166.67	2622.22	324	17419.46
60	2166.67	2700.83	300	30068.15
84	2166.67	2796.26	276	43587.32
120	2166.67	2982.29	240	65571.34
180	2166.67	3484.43	180	107018.03

The second column is identical in all five rows, and that is the point of the table: the payment you are shown when the loan is sold does not change at all when the interest-only period changes. Everything else does. The third column rises from 2,622.22 to 3,484.43 as the period stretches from 36 months to 180, and the fourth shows why — a longer interest-only period leaves fewer months to repay the same principal. The last column is the cost, and it grows faster than the period does: five times the length takes the extra interest from 17,419.46 to 107,018.03, which is a little over six times. Note also that the interest-only payment and the recast payment converge as the period shrinks, and would meet at zero months — the point at which the loan is simply an ordinary amortising mortgage.

Formula

Interest-only payment = loan amount × annual rate ÷ 12. Payment after recast = the amortising payment on the same balance over the months remaining: n − k, where n is the term and k is the interest-only period. Increase = the recast payment minus the interest-only payment, expressed as a percentage of the interest-only payment.

P: Loan amount
a: Annual rate, as a percentage
n: Term of the loan, in months — the loan still ends here
k: Length of the interest-only period, in months
r: Monthly rate: the annual rate divided by 12 and then by 100

Use it when a loan is being sold on the payment, which is what interest-only structures are for. Put in the term first, then the interest-only period, and read the third number before the second: the payment after the recast is the one that has to fit the budget, and it arrives whether or not anything else has changed. Then compare the increase against what the money is doing in the meantime. An interest-only period is a deferral of principal, so it is worth its cost only if the cash it frees up is doing something more valuable than 6.5% a year, and the last column puts a number on exactly what that costs. The table is the part to read if you are choosing a length: each extra year of interest-only raises the recast payment and raises the total interest difference, and the two do not move at the same speed.

Worked examples

400,000 at 6.5%, 30 years, 10 years interest-only
1. Monthly rate: 6.5 ÷ 12 ÷ 100 = 0.00541667
2. Interest-only payment: 400,000 × 6.5% ÷ 12 = 2,166.67, and the balance is still 400,000 after 120 months
3. Months remaining: 360 − 120 = 240, so the recast runs over 240 months, not 360
4. Recast payment: 400,000 at 6.5% over 240 months = 2,982.29
5. Increase: 2,982.29 − 2,166.67 = 815.62, which is 37.6% of 2,166.67
6. Interest during the interest-only period: 2,166.67 × 120 = 260,000.40, all of it interest
7. Interest after the recast: 2,982.29 × 240 − 400,000 = 315,750.75
8. Interest if the same loan amortised from day one: 510,179.81, so the deferral costs 65,571.34
The default case, and the clearest demonstration that the term does not change: the recast is over 240 months because 120 of the 360 have already been used up paying interest. The payment rises 37.6% on a date fixed at signing, and the cost of the arrangement is 65,571.34 in extra interest — which is what the freed-up cash would have to beat to make this worth doing.
The same loan with only 3 years interest-only
1. Interest-only payment is unchanged at 2,166.67, because it depends only on the balance and the rate
2. Months remaining: 360 − 36 = 324
3. Recast payment: 400,000 at 6.5% over 324 months = 2,622.22
4. Increase: 455.55, which is 21% of 2,166.67 — a much smaller step than the 10-year case
5. Interest during the interest-only period: 78,000.12
6. Total interest: 527,599.27, against 510,179.81 for a loan amortising from day one
7. Cost of the deferral: 17,419.46
Three years of interest-only instead of ten cuts the recast increase from 37.6% to 21% and the cost from 65,571.34 to 17,419.46 — both fall by roughly two thirds, in line with the length of the period. The interest-only payment itself does not move at all, which is the trap: the number you are shown when the loan is sold is identical in every row of the table, and it is the number that changes that decides what happens later.
250,000 at 7.5% over 20 years, 5 years interest-only
1. Interest-only payment: 250,000 × 7.5% ÷ 12 = 1,562.50
2. Months remaining: 240 − 60 = 180
3. Recast payment: 250,000 at 7.5% over 180 months = 2,317.53
4. Increase: 755.03, which is 48.3% of 1,562.50 — the largest proportional step in these examples
5. Interest during the interest-only period: 93,750
6. Total interest: 260,905.67, against 233,356.89 for a normal schedule
7. Cost of the deferral: 27,548.78
A shorter loan makes the same structure much more aggressive. Five years of interest-only on a 20-year loan uses up a quarter of the term, so the recast has to compress the whole principal into 180 months — and the payment rises by nearly half rather than by a third. The proportional increase depends on how much of the term the interest-only period consumes, not on how much is borrowed.

Limitations

The rate is fixed for the whole term, so a variable-rate interest-only loan is not represented, and that combination is common enough to matter. The model assumes the payment during the interest-only period is exactly the interest, with nothing toward principal; a structure that requires partial principal payments would leave a smaller balance at the recast and would not show the increase computed here. The comparison against a fully amortising loan uses the same amount, rate and term, which isolates the effect of the interest-only period but is not a like-for-like comparison of two loans a borrower would actually be offered — an interest-only loan often carries a different rate, and this page does not model that. At the extremes of the rate and term ranges the interest difference can turn negative, meaning the interest-only structure costs less over the full term than amortising from day one; that is a genuine result of the comparison rather than a rounding error, it happens because at very high rates the amortising schedule barely reduces the principal either, and it should not be read as an argument for those inputs. Fees, closing costs, taxes and insurance are all outside the model. Zero per cent is rejected rather than answered, because the increase has no denominator when the interest-only payment is zero. And no currency is attached to any figure.

Frequently asked questions

Does an interest-only period make the loan longer?: No, and this is the most commonly misremembered part. The loan still ends on the original date; the recast spreads the remaining balance over the months that are left, not over a fresh term. On a 30-year loan with 10 years interest-only, the recast payment is computed over 240 months, which is exactly why it is so much higher.
How much does the payment go up?: On 400,000 at 6.5% over 30 years with 10 years interest-only, from 2,166.67 to 2,982.29 — an increase of 815.62, or 37.6%. The percentage depends on how much of the term the interest-only period consumes: shortening it to 3 years brings the increase down to 21%, and on a 20-year loan with 5 years interest-only it is 48.3%.
What does the interest-only period actually cost?: In extra interest over the whole term, 65,571.34 in the default case — 575,751.15 against 510,179.81 for the same loan amortising from day one. The balance that would otherwise have been falling for a decade stands still while interest accrues on all of it, and that is the entire cost.
Why does the interest-only payment stay the same when I change the period?: Because it depends only on the balance and the rate — 400,000 × 6.5% ÷ 12 is 2,166.67 whether the period lasts three years or fifteen. That is the trap in how these loans are sold: the number shown is identical across every row of the table, while the number that decides what happens afterwards changes a great deal.
Can the interest difference ever be negative?: Yes, at the extremes of the rate and term ranges. At very high rates a normal amortising schedule barely reduces the principal either, so the deferral saves rather than costs. It is a real result of the comparison rather than a rounding artefact, and it is not an argument for borrowing at those rates.
Why is zero per cent rejected?: Because the increase has no denominator: if the interest-only payment is zero there is nothing to express the increase as a percentage of, and a 0% interest-only period is self-contradictory. The rate field starts at 0.01% for that reason.
What is not included?: Fees, closing costs, property taxes, insurance, and any rate difference between an interest-only loan and a fully amortising one. The comparison here holds the rate constant, which isolates the effect of the structure but is not how two real offers would differ. And no currency is attached to any figure.

References

12 CFR 1026.43 — Minimum standards for transactions secured by a dwelling: paragraph (b)(11)(ii) defines recast for an interest-only loan as the expiration of the period during which interest-only payments are permitted, and paragraph (c)(5)(ii)(B) requires the creditor to consider the scheduled payment after the recast over the term of the loan remaining — Electronic Code of Federal Regulations, United States
What is an interest-only payment? — the regulator's explanation of what the payment covers during the interest-only period and what happens when it ends — Consumer Financial Protection Bureau (United States)
What is a mortgage recast? — the regulator on re-amortising a balance, and why the payment changes even though the rate and the term do not — Consumer Financial Protection Bureau (United States)

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