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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.

How Does a Step-Up Home Loan Work?

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

Loan Tenure

EMI on Step Up Loan

% Difference

Months: 1-24 


Less by 20.3%

Months: 25-240

₹43, 748/-

More by 4.6%

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. 

Types of Step Up EMI Home Loans

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.

Pros and Cons of a Step-Up Home Loan

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



Improves your chances of loan eligibility and approval

If the borrower’s salary does not multiply in the future as expected, paying higher interest rates will be difficult

Can avail of numerous tax benefits

Borrower will end up paying lower amounts of EMI initially, when the principal is less, and the interest is much more

Cost of loan is lesser due to lower EMIs in the initial years

If a floating interest rate is opted for, fluctuations as per the market will prove costly

Step Up Home Loan vs Regular Home Loan

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


Step-Up Home Loan

Home Loan

EMI Structure

Gradual increase in EMIs with time

Fixed amount of principal + interest

Rate of Interest

Typically starts from 7.9%

Typically starts from 6.65%

Chances of Approval



Tenure of Repayment

Up to 30 years

Up to 30 years

Ways of Claiming Tax Benefits

Interest rate on home loans is deductible (twofold if it is a joint home loan with spouse)

Home Loan interest rate paid can be claimed under Section 24 and 80 EEA

How to Apply for a Step Up Home Loan?

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.

FAQs on Step Up Home Loan

If you are young and wish to purchase a home, a step-up home loan is the best bet. Such a loan increases your loan eligibility, reduces the initial payment burden, and offers you a wide range of tax benefits.

The interest rate on a step-up home loan starts at 7.9%.

To avail of a step-up home loan, your salary must be at least Rs. 25,000 per month.


The repayment tenure on a step-up home loan spans up to a maximum of 30 years.


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