What is a step-up home loan?

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oi-Roshni

By Roshni Agarwal

Published: Thursday, April 17, 2014, 11:31 [IST]

Step-up home loan is one of the home loan product of the bank that takes into account future earning potential or expected salary of the prospective borrower and correspondingly increases his home loan eligibility. So, even in the case when your current income or salary does not allows you to buy a large house; you can increase your home loan eligibility by availing the step-up loan product.

This loan product can increase your home loan eligibility by anyway between 5-30% depending on the industry you work in and the future earning prospect of your job or profession. The rates also vary from bank to bank.

EMI and Cost of Step-up home loan

In a step-up home loan offering, terms of the loan are grouped in slots. As a result, during the initial years of the home loan tenure, the EMIs or equated monthly installments that need to be paid towards the debt are lower and with time the EMI amount increases. This is due to the fact that every few years an individual's salary or income is expected to increase and with it his or her repayment capacity shall also increase, so EMIs in a step-up home loan are increased proportionately. Consequently, towards the end of the loan tenure, you pay a comparably higher sum as EMI for the home loan.

The cost of step-up home loan is higher than the regular home loan but this is justified considering the higher loan amount which an individual can secure against his/her current earnings.

Step-up home loan: For whom

Step-up home loan can be a good option for young people who have just started their careers and are considering home purchase. And so, in case you hold a good professional qualification and are working in a sector that has a promising future, lender offering the facility shall surely entertain your request for step-up home loan and increase your home loan amount accordingly.

Banks providing step-up home loan facility in India

Corporation Bank, Union Bank of India, ICICI Bank and HDFC Bank are some of the banks that offer step-up home loans to eligible customers. Majority of the banks in the public sector space do not offer pure step-up home loan i.e. do not increase the quantum size of the loan in any case and only offer a step-up repayment facility (SURF) to loan borrowers, wherein the EMI is increased gradually.

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