What happens when the interest-only period ends
During the interest-only period, none of your payment reduces the balance. When it ends, the lender recalculates the payment so the full balance is repaid over the remaining years. A 10-year interest-only period on a 30-year loan means 20 years to repay all of the principal, so the payment can rise by 20% to 40% or more.
| Interest-only | Standard fixed | |
|---|---|---|
| Payment early on | Lower | Higher |
| Equity from payments | None during the period | Builds from the start |
| Payment later | Jumps | Stays level |
| Total interest | Higher | Lower |
Make sure you could afford the higher payment, or plan to sell or refinance before it starts. See the extra payment calculator to model paying principal anyway.