Break-Even Calculator
Find the month at which an interest-only loan that reverts to principal & interest overtakes a straight principal & interest loan on total cash paid.
Tool only — not financial, tax, or legal advice. Figures are estimates. Consult qualified professionals before making decisions.
Inputs
Result
Break-even month
Month 194
| Straight P&I monthly repayment | $2,998 |
|---|---|
| Interest-only monthly repayment | $2,500 |
| Reverted P&I monthly repayment | $3,222 |
| Cumulative straight-P&I cost at break-even | $581,564 |
| Cumulative interest-only path cost at break-even | $581,682 |
Email me a PDF report
How this calculator works
The calculator builds two cash-flow streams on the same principal, rate, and term. One is a straight principal & interest loan. The other pays interest-only for the interest-only period, then reverts to principal & interest over the remaining term at a higher payment because the full principal still has to be repaid.
It walks the loan month by month, accumulating the dollars paid under each stream. The first month at which the cumulative interest-only path cost is greater than or equal to the cumulative straight-P&I cost is reported as the break-even month.
If the rate is zero, or the interest-only period is zero or as long as the whole term, the two streams never cross. The calculator returns no break-even month in those cases.
Frequently asked questions
- What does break-even mean here?
- Break-even is the month at which the cumulative dollars paid on an interest-only loan that reverts to principal & interest first equals or exceeds the cumulative dollars paid on a straight principal & interest loan of the same principal, rate, and term. During the interest-only period the IO path costs less cash; after it reverts, the IO path repays the full principal over a shorter remaining term at higher payments and eventually its cumulative cost overtakes the straight-P&I loan.
- When does the interest-only path stop being cheaper?
- The interest-only path is cheaper in cash terms right up to the break-even month. From that month onward the cumulative cost of the reverted P&I payments has caught up with and passed the straight-P&I loan, so continuing to compare the two shows the IO path costing more in total.
- Why does the break-even month depend on the inputs?
- A higher interest rate makes the reverted P&I payments larger relative to the interest-only payments, so the cumulative IO cost catches up sooner and the break-even month moves earlier. A longer interest-only period defers the higher reverted payments, so the break-even month moves later.