Interest Only Stepdown Calculator

IO-to-amortization conversion creates a scheduled payment shock.

Loan balance

Interest rate %

IO period years

Total term years

Monthly stepdown increase

$31,151

IO monthly payment

$91,667

Amortization monthly payment

$122,817

How the math works

IO = balance × monthly rate. Amort uses standard formula over remaining term. Stepdown = amort − IO.

$20M × 5.5% / 12 = $91.7k IO. Amort over 25 yrs = $122.8k. Stepdown $31.1k/mo = 34%.

How to Use

Enter loan balance.
Enter interest rate %.
Enter IO period years.
Enter total term years.
Read IO vs amortization payment stepdown.

Frequently Asked Questions

Why interest-only?

IO periods give borrower lower initial payments to support lease-up, stabilization, value-add renovation, or capital preservation. Common structures: 2-5 year IO in a 7-10 year fixed deal, then amortization begins. IO payment = balance × rate ÷ 12 (principal untouched). Amortizing payment same balance across remaining term = 20-50% higher. Sophisticated lenders price IO period slightly higher to offset risk; typical pricing premium 10-25 bps.

When does IO make sense?

(1) Value-add plans with predictable NOI ramp (renovation lease-up, market repositioning). (2) Stabilized assets held for sale within IO period (no principal pay-down needed). (3) Cash flow management during recession or capital conservation. (4) Portfolio companies balancing across many loans. Not ideal when you can't credibly stress-test the step-down year. Many bridge loans are all IO — but you need a clear refinance/sale exit.

Stepdown math example?

$20M loan at 5.5% over 10-year term. Full amortization 30-yr: $113.6k/mo from day 1. With 5-year IO: $91.7k/mo IO, then $128.4k/mo amortizing over remaining 25 years. Stepdown month-61: $36.7k jump = 40% increase. NOI must have grown by 40% just to maintain same DSCR — aggressive assumption. Many IO deals fall short.

How do lenders price IO risk?

IO borrowers get lower day-1 payment but lender sees more credit risk: amortization doesn't start reducing balance, so LTV doesn't naturally decrease. Lender insists on: (1) stronger debt coverage at underwriting (1.35-1.50 DSCR minimum), (2) lower LTV (65-70% vs 75-80% for full-amort), (3) borrower guarantees or recourse provisions, (4) reserve funding. Institutional lenders also require interest rate caps during IO period to limit cash-flow shock at reset.