Step Up Home Loan

Owning a home of your own is a universal dream. However, with steep real estate prices, this dream often remains just a dream for many. This is where a step-up home loan comes into play. This form of a loan is convenient for a wide range of borrowers alike, as it involves paying lower amounts of EMIs in the initial stages – and as time and your income increase, you can then pay larger amounts. 

When you avail of a step-up home loan, the ‘Step Up’ can be undertaken in various stages – based on age, earnings, and even the salary range of your spouse. Such a loan increases your loan eligibility, reduces the initial payment burden, and offers you a wide range of tax benefits. 

Over the course of this article, we shall explore all that you need to know about a step-up home loan.

Let us now try to understand how a step-up home loan works by way of an example.

Let us assume that Customer X, who has availed of a step-up home loan, has been authorised a loan amounting to ₹50 Lakhs for a period of 20 years (interest serving construct for the first 2 years).

Thus, over the first 2 years, Customer X will only have to shell out interest on the amount of ₹50 Lakhs and will not have to pay the principal constituent.

For the other 18 years, Customer X will have to shell out the interest as well as the principal component as EMI, applicable on ₹50 Lakhs.

Thus, with a:

Loan Amount of ₹50 Lakhs

Tenure of 20 years

Rate of Interest at 8%,

The Loan amount would be Rs. 41,822

In the case of a step-up home loan, the lender will resort to calculating the loan amount on a lower EMI in the first few years, which will help you opt for a larger loan amount. The lender will factor in your future earnings to further sanction a larger loan amount. 

In the foreseeable future, as your income goes up, so will your EMI. 

There exist two types of step-up home loans:

• Interest Servicing Construct: In this kind of a step-up home loan, you will only have to pay the interest amount as EMI for the first two years and can avail of a principal moratorium without any principal outstanding runoff during the entire duration.

• Term Loan Construct: In this kind of a step-up home loan, you will have to pay routine EMIs (interest and principal) for a residual tenure after you complete the interest servicing period.

The pros and cons of a step-up home loan are as listed below:

The differences between a step-up home loan and regular home loan are as listed below:

To apply for a step-up Home Loan:

• Step 1: Visit your lender’s website, and enter the requisite personal, employment, and financial details asked.

• Step 2: Make use of the step-up home loan calculator to get an estimate of the loan amount you can avail.

• Step 3: Use the step-up home loan EMI calculator to better understand the EMI structure.

• Step 4: Once you submit the documents requested, click on the ‘Submit’ tab.

Purchasing a home of your dreams, when you’ve just started out in your career can be a daunting task. Managing finances and checking for eligibility of home loans can all prove to be worrisome. However, with a step-up home loan, you can purchase the house of your dreams without fretting about steep EMIs, while availing of a host of other benefits suited to your needs and finances.