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Interest-Only vs Amortizing Calculator

See exactly how much interest-only lowers your payment, boosts your DSCR, and costs in total interest — side by side with a standard amortizing loan.

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I/O vs amortizing

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Full amortizing term

Default 10 years

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For DSCR comparison

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Comparison

Interest-only

$2,114.58

per month

Amortizing

$2,387.62

per month

I/O saves $273.03/mo during the I/O period

Total interest over 5 yrs (I/O)
$126,875
Total interest over 5 yrs (amort)
$123,583
Total interest over 10 yrs (I/O)
$253,750
Total interest over 10 yrs (amort)
$238,600
Total interest full 30-yr (I/O + amort)
$567,666
Total interest full 30-yr (amort only)
$509,542

DSCR boost

DSCR with I/O payment
1.10
DSCR with amortizing
0.99
DSCR boost from I/O
+0.11

Interest-only lowers your monthly payment during the I/O period — but you build no equity and your payment jumps when the loan converts to full amortization. I/O boosts DSCR but increases total lifetime interest paid.

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What is an interest-only DSCR loan?

An interest-only (I/O) DSCR loan means you pay only the interest portion of the mortgage for an initial period — typically 10 years — with no principal reduction. The monthly payment is lower than a fully amortizing loan on the same balance. After the I/O period ends, the loan converts to fully amortizing on the remaining term.

The appeal is straightforward: lower monthly payment = higher DSCR = better lender terms = stronger cash flow position during the hold period. The cost is that you build no equity through amortization and pay more total interest over the life of the loan.

The payment math

On a $350,000 loan at 7.25%:

  • I/O monthly payment: $350,000 × 0.0725 / 12 = $2,114
  • Amortizing 30-year payment: $2,388
  • Difference: $274/month, or $3,288/year during the I/O period

If monthly rent is $3,200 and TIHA is $700, the DSCR comparison is:

  • I/O DSCR: $3,200 / ($2,114 + $700) = $3,200 / $2,814 = 1.14
  • Amortizing DSCR: $3,200 / ($2,388 + $700) = $3,200 / $3,088 = 1.04

Both are in the 1.00–1.24 tier, but on a tighter deal where rent is $2,900, I/O might cross the 1.00 threshold while amortizing doesn't. That's the tier boundary that matters on tight deals.

Total interest: the real cost of I/O

The interest-only structure trades lower monthly payments for higher lifetime interest. Over the full 30-year life of the loan, an I/O loan with a 10-year I/O period generates approximately $48,000–$62,000 more total interest than a standard 30-year amortizing loan on the same balance and rate.

However, this number is largely irrelevant for the majority of DSCR investors who have a 5–10 year exit horizon. For a 7-year hold, the relevant comparison is:

  1. Cumulative interest paid through year 7 (slightly more with I/O vs amortizing in early years)
  2. Property appreciation during that period (same either way)
  3. Cash flow differential (higher with I/O — the $274/month adds up)
  4. Equity position at sale (lower with I/O — no principal paid down)

Run both scenarios explicitly with your actual hold assumption, not the full 30-year horizon.

The DSCR threshold strategy

Interest-only is most powerful as a DSCR threshold strategy — when a deal would fall into the 0.75–0.99 tier on a fully amortizing basis but clears 1.00 on I/O. The pricing improvement from crossing the 1.00 threshold can be:

  • Rate add-on reduction: typically +0.25 to +0.375% drops off
  • LTV improvement: from 70–75% cap to 75–80% access
  • Lender pool: from limited to mainstream lenders

These secondary benefits compound across the full term of the loan and are often worth more than the simple payment math suggests.

When I/O is the right call

Interest-only makes sense in three specific scenarios:

  1. Tight DSCR at amortizing payment. The deal qualifies at I/O DSCR but not at amortizing. Without I/O, the deal doesn't close or closes with worse terms.
  2. Capital recycling strategy. You plan to deploy the $274/month savings into additional acquisitions and exit before the I/O period ends. The opportunity cost of the capital exceeds the equity-building benefit.
  3. High-appreciation markets. In a market where you're buying for appreciation rather than cash flow, I/O maximizes monthly cash flow and maximizes your eventual sale proceeds relative to debt service paid.

Next steps

Frequently asked questions

How does interest-only improve DSCR?
Interest-only eliminates the principal component from the monthly payment. On a $350,000 loan at 7.25%, the I/O payment is $2,114/month vs $2,388 for a 30-year amortizing payment — a $274 difference. If monthly TIHA (taxes, insurance, HOA) is $700, that moves PITIA from $3,088 to $2,814 and raises DSCR from 0.91 to 0.99 on $2,800/month rent. The DSCR boost is real and often crosses a tier boundary.
Do DSCR lenders offer interest-only loans?
Yes, but not all of them. Roughly 30–40% of DSCR lenders offer I/O options, typically on a 30-year note with a 10-year I/O period. Requirements are usually tighter: minimum 25% down (75% LTV or less), 680–720+ FICO, and sometimes a DSCR floor of 1.00 even on the I/O payment. Lenders that don't offer I/O will be excluded from your match if you need it.
What happens when the I/O period ends?
After the I/O period (typically 10 years), the loan converts to fully amortizing on the remaining term. If you have a 30-year loan with a 10-year I/O period, months 121–360 are fully amortizing over 20 years — not 30. The payment jumps at conversion because you're amortizing the full original balance over fewer years than a standard 30-year amortization. This is the key risk: your DSCR will drop at conversion.
Does building no equity during I/O hurt me?
Mathematically, yes — you don't reduce principal during the I/O period, so your loan balance at year 10 equals your original balance. In practice, this matters mainly if the property value declines, leaving you with little or no equity. Many DSCR investors use I/O specifically because they plan to sell or refinance before the I/O period ends, capturing appreciation and recycling capital. If that's your plan, model the equity position at exit, not the amortization schedule.
How does total interest compare on I/O vs amortizing?
I/O always produces more total interest paid over the full life of the loan because you're not reducing principal during the I/O period. On a $350,000 loan at 7.25% with a 10-year I/O period, you'll pay approximately $40,000–$60,000 more in total interest over 30 years compared to a standard amortizing loan. However, for most DSCR investors with a 5–10 year hold, total 30-year interest is not the relevant comparison — what matters is DSCR, cash flow, and exit value during the hold period.
Can I pay extra toward principal on an I/O loan?
Most I/O DSCR loans allow prepayment, but prepayment penalty structures still apply. Paying extra principal voluntarily during the I/O period reduces the balance and therefore the payment at conversion. However, DSCR lenders don't require it. If your goal is capital efficiency — keeping cash available for additional acquisitions — the I/O structure is designed exactly for that.
Is interest-only available on DSCR refinances?
Yes. Cash-out and rate-and-term DSCR refis can include I/O if the lender offers it. The same requirements apply: typically 25% equity minimum (75% LTV), 680+ FICO, and DSCR above 1.00 on the I/O payment. I/O refis are particularly useful when a refi drops the base rate enough that the I/O DSCR clears 1.25 even on a high-balance loan.
What's the I/O payment formula?
I/O monthly payment = (Loan amount × Annual rate) / 12. At 7.25% on $350,000: (350,000 × 0.0725) / 12 = $2,114/month. No amortization calculation needed. The rate is what determines the entire I/O payment — principal does not factor in at all during the I/O period.
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