Top Things You Should Know About Step-up Home Loans

Now-a-days Real estate prices are going up across pan india and will continue to increase in the coming years because of the demand for housing properties. The improved economic situation and job opportunities led the young people to buy the property at their early stage. Recent tax sops on Home loans is a bonus to this. However, many young employees who are at their early stage of earning may not get Home loans to their expectations because of the low income. But, some of these employees are having a good professional qualification and are working in a promising sectors. So, chances of getting higher salaries in the future are more. Step-up Home loans are best suitable for these employees for purchasing a property which are slightly higher cost and may not get sufficient home loan under normal conditions. Will see the features, Benefits and the limitations with Step-up Home loan in this article…

About Step-up Home Loan:

Step-up Home loan is a next version of Home loan. Banks will estimate your future earnings potential and will sanction the Step-up Home loan to avail the higher cost housing property.

Features of Step-up Home loan:

1. Step-up Home loan product increases your loan eligibility about 5% — 30% depending on your future earning potential and the sector you are working.
2. In the initial years of the Step-up Home loan tenure, the EMIs would be lower and it increases with the time expecting your salary would increase proportionately by the time.

1. Banks do not give Step-up loans easily because the risk is higher. Chances of getting increment in your career is a toss. You may loose job in future or your spouse may stop working in future.
2. Because of the risk involved in this loan, Banks will not offer this product to Business persons. Even for salaried employees also, Banks will determine the loan eligibility on case-to-case basis.
3. At initial stages, the EMIs would be lower, hence the interest component of EMI is high and principal component is low. Hence you will be paying more interest when compared to normal EMIs of Home loan.
4. Some Banks offer Step-up Home loan schemes on fixed interest rate, but these loans are costlier than those with floating rate.

Benefits of taking Step-up Home loan:

1. Step-up Home loans are best suitable for those who have just started their career and having the potential to increase their salary in future. The repayment burden is low initially, hence these employees can easily bear the EMIs.
2. Government recently increased the tax exemption on Home loan interest from 1.5 lakhs to 2 lakhs under section 24B. The interest component in the EMI is more initially, hence the borrower can enjoy the full benefits tax exemption of this new amendment.
3. Working couples can club their income jointly and can get step-up loan to maximum extent.
4. The step-up Home loan scheme might be executed in diverse stages. In certain case there are 2 stages, one lower and other higher. In different cases, it is a gradual system. It might be done yearly, following 5 years or whenever interim s.

Limitations of Step-up Home Loans:

1. The probability of increase in salary is a toss. You may not get salary hike as you expected. You should be prepare in advance before opting for Step-Up home loan and accordingly you need to choose this option.
2. Now-a-days in some sectors, laying off the jobs is common. Both working couple may loose their job or couple may be separated various reasons (by God’s grace it should not be!). In this instance, the Step-up loan might be a burden for you.
3. The interest component in the EMI is more during initial days and hence the Out-standing principal component will be less deducted and this causing you will be paying more interest when compared to normal Home loans.
4. If you opt for Floating rate, you might be paying more interest when compared to Fixed interest Step-Up Home loans.

Banks providing step-up home loan facility in India:

The following are some of the Banks providing Step-up Home loans to the eligibile customers. As these Step-up Home loans are more risky compared to normal Home loans, majority of Public Sector Banks do not offer pure Step-up Home loans. These Banks offer a step-up repayment facility (SURF) to loan borrowers, wherein the EMI is increased gradually.

• Corporation Bank,
• Union Bank of India,
• ICICI Bank and
• HDFC Bank

Conclusion:

Though the Step-up Home loans are convenient for taking higher cost properties with the existing low salary, the prediction of your future salary and job security is the key points in opting for this product. Be prudent and sense when you are estimating your future salary increment. Consider the inflation rate also for this estimation. This will help you how much you can pay in future. Also, it is suggestible to take fixed rate option as this will control your EMIs.

Wish You All the Best!