At the expiry of the interest-only period, required payments will increase by around 30–40 per cent (with an example shown in the bar on the right). (As shown in the graph, the interest rate applied to the loan is expected to be lower when it switches to P&I (by around 40 basis points) but this effect is more than offset by the principal repayments.)
7 / 13  BIS central bankers' speeches  The rise in scheduled payments amounts to about $ per year for the representative interest-only borrower. This is a non-trivial sum for the household concerned. But how big is this cash flow effect when summed up across all households currently holding interest-only loans?