Buying your own home at a young age is itself an achievement and most of the young professionals are successful at it nowadays. However, a major part of our population who have just started earning don’t even think about it. But this is what which unknowing pulling them back. Financial advisers also advice to purchase a home as much early as can and the initial stage of your career is the best time for it. When you are young and start earning you are free from any responsibilities hence, it is the best time to invest and make your future financially stronger.

However, most of the young professionals don’t bother about all these financial stuff and focuses on the enjoyment of the present. A major reason which stops there thinking about doing a major investment like purchasing a home is “they think they are earning less and couldn’t afford to buy a home” and hence they focus on their enjoyment instead managing their finances and investment. It’s a common thinking with most of the young professionals that they should start their financial life once they will start getting a handsome amount of salary.  Here they totally forget the fact your salary is going to increase only with your growing experience and age and by that time so will your responsibilities.

But, now it is possible for young professionals to buy their own dream home. This can be possible by going for a Step-Up Home Loans.

What is Step- up Home Loan?

A step up home loan is one where one can pay lower Equated Monthly Instalment (EMI) in the initial years of loan repayment.  The repayments (EMI) is increased gradually as the tenure progresses.

It is a loan option where the lenders are confident about growth in annual income of the borrower in the near future. Hence, provides them with a repayment schedule which is linked to the increase in income of the borrower. Talking in a nutshell, one can pay lower EMIs in the initial years and can increase it with tenure and income.

Essential Considerations before Applying for a Home Loan

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Lower EMI Burden

With the low repayment burden in the initial years, it is suitable for those who have just started their careers such as young professionals.

Increases the Eligibility

Loan eligibility also increases when you opt for a step-up home loan.

The step-up loans are generally available only to salaried professionals who are stable in their careers and who have better job prospects with salary hikes in the near future.  Depending on this parameters, the loan eligibility of the borrower also increases.

Maximises Tax Benefits

Since the majority of the initial instalments go towards interest, tax benefits can also be availed by the borrower for a longer duration.

Saving on Interest

With the tax benefits, the cost of borrowing becomes down. The savings can thus be deployed in investments offering a higher rate of return.

Saving for Home Loan Down-payment

Features of Step-up Home loan

  1. Step-up Home loan increases the loan eligibility from 5% – 30% depending on the future earning potential of the borrower.
  2. In the initial years of the Step-up Home loan, the EMIs are lower and it increases with the increase in tenure as salary would increase proportionately by the time.
  3. Banks do not approve a Step-up easily as they are a high risk involved. Is there is career toss involved which can be good but there are chances of failure too. The borrower may lose the job in future which can too risky for the lender.
  4. Because of the above-involved risk in the step up home loan, Banks will not offer this loan to Business persons.
  5. Banks offer Step-up Home loan on the fixed interest rate.

Limitations of Step-up Home Loans

In the step-up home loan initially, a major part of the EMI is interested in EMI and as a result, the outstanding principal will be reduced at a lower speed.

If one opts for a floating interest rate, they might have to pay more interest compared to that of with fixed interest rate step-up repayment.

Home Loans in India: One for Every Need!

Top 5 Providers of Step-up Home Loan in India

  1. HDFC Bank
  2. ICICI Bank
  3. Corporation Bank
  4. Union Bank of India

So, What did we learn?

Be sensible enough while opting for a step-up home loan. Choose the percentage of increment towards the EMI for future very carefully. Try to use the inflation of 2-3 percentage in general and as per your expected salary growth. Always go with a fixed interest rate option instead of floating rate option. Borrow as much as needed and which can you repay easily.

Remember Step-up Home loans are convenient for higher cost properties for people with a low salary. Prediction of borrower’s future salary and job security are the key points of consideration for this loan.