How monthly interest-only payments work
The estimate divides the nominal annual rate by 12 and multiplies that monthly rate by the loan balance. Because each payment covers interest only, the balance stays unchanged and the principal remains due at the end of the term.
Commercial lenders may quote interest-only payments for property or business finance. Actual contracts can use daily accrual, actual/360 or another convention; this calculator assumes equal monthly periods and monthly interest paid in arrears. It does not roll unpaid interest into the loan.
Worked example
At a £500,000 balance and a 7.5% nominal annual rate, monthly interest is £3,125. Over 60 months the estimated interest totals £187,500. The £500,000 principal is still due at maturity, making total cash payments £687,500 before fees.
The example is an arithmetic illustration only. A lender may use a different day-count convention, rate reset, payment date or fee schedule.
Plan for the principal repayment
The monthly figure does not repay the loan principal. Check the facility's exit plan, maturity date and payoff amount, and consider what happens if a sale or refinance is delayed.
Fees, compound or rolled-up interest, amortizing payments, rate changes, taxes and lender eligibility are outside this calculation. For a principal-and-interest estimate, use the business loan calculator. For a refinance comparison, use the commercial loan refinance calculator.
Inputs for the interest-only commercial loan calculator
Commercial loan balance
The principal on which monthly interest is charged. It is not the property's value or a facility limit.
Quoted nominal annual rate
Enter the fixed annual rate and use the same basis as the quote. The tool divides it by 12.
Interest-only term
Whole months of interest payments before the full principal is due.
CALCULATOR QUESTIONS
Interest-only commercial loan calculator questions
Does an interest-only payment reduce the loan balance?
No. Under this model the monthly payment covers interest only, so the original principal remains due at maturity.
How is monthly interest calculated?
Multiply the balance by the nominal annual rate divided by 12. For example, £500,000 at 7.5% gives £3,125 a month.
Does this include rolled-up interest or fees?
No. It assumes monthly interest is paid when due. It excludes rolled-up interest and all fees.
Can I use it for a US or UK loan?
The arithmetic is universal and the currency picker changes presentation only. Check whether your lender uses a daily or other accrual convention.