Should you opt for Step-Up Home Loans?

Should you opt for Step-Up Home Loans

Should you opt for Step-Up Home Loans?

If you have just started your career and is eager to buy your dream home with your small income, step-up home loan can help you to fulfill your dream faster. Step-up home loans are provided by banks and financial institutions for individuals who have just started or started their career, but currently in low income group, but have good potential earnings in future. In this article, I would provide some insights about what is Step-Up Home loan, how does this work, the advantages of Step-up home loan, its negatives and finally whether one can opt for this facility or not.

What is Step-Up Home loan?

Generally, when you want to buy a house or property, banks or financial institutions assess your loan eligibility based on property value and based on your salary or business income. If you are young and just started your career, your income is low and your eligibility for home loan also would be low. It also could be that you might be earning low income now. Here come the Step-Up Home loans. Under this scheme, your future income is assessed based on the potential in your job or business where you are working. If you are holding professional qualifications like Doctor, Chartered Accountants, Cost Accountants etc. or working in a promising sector like Information Technology, Telecom Sector etc., you can request the loan provider to help you with the Step-Up Home Loan considering these points.

Also Read: Do you know that SBI Maxgain Home loans can help you to reduce interest rate burden?

How do Step-Up Home Loans work exactly?

Once banks or financial institutions give their confirmation and approve the Step—Up Home Loan, the next set of process would be as follows.

  • EMI (Monthly installments) under this Step-Up Home loans are divided into pieces. EMI’s are not same throughout the home loan tenure.
  • EMI’s would be low at earlier stages of loans.
  • Later EMI goes up.
  • It is good that at your age and income, you would be paying low EMI’s. Later point of time, your EMI increases (assuming that your income also increases).
  • An individual can also request for a Step-Up home loan in case he / she gets married and can provide that their spouse income can be added to their income in assessing loan eligibility or step-up home loan eligibility.

How much loan one is eligible under this Step-Up Home Loan?

It depends on bank to bank or financial institution to another. It also depends on the sector and age of the individual who is applying for a loan. It could be in the range of 10% to 40% of your normal home loan eligibility. Means if you are eligible for say home loan of Rs 30 Lakhs, you can get Step-up Home loans between Rs 3 Lakhs to Rs 12 lakhs more.

Negative sides of Step-up Home Loans

This has several negative points too.

  • Interest rates under Step-up Home Loans are a little high compared to normal Home loans.
  • During the early stages of loans, interest paid is very high and EMI may not even cover interest payments.
  • Floating rates can kill you in Step-Up Home loans. You should consider taking Fixed Rate home loans here.
  • Estimation about future earnings can go for a toss. An individual can get into trouble where his/her EMI for step-up loans is higher than the income at future point of time.
  • There is risk of getting laid off from jobs.

Also Read: Cheapest home loan interest rates in India

Who should opt for Step-Up Home Loan Schemes?

  • If you are in, young age, confident about building a strong career can opt for such schemes. Low risk takers should stay away from such schemes.
  • When you are in early stages of career, wait for 2-3 years so that you would build confidence in yourself and know how you are progressing in your life. This could be a good indication to assess whether you should opt for such loans or not.
  • Selecting Fixed interest rate Step-Up Home loan option could be a good option.
  • Use this scheme to buy what you need. Don’t go for Step-Up Home Loan option to buy furniture or interiors. Use such loan purely for buying a house or property. Since you might be in the early stages of your career or you are earning low income and expecting good income in future, such luxuries (which I feel) can pose risk to your financial life.

Summary: I am positive about Step-Up Home Loan schemes offered by banks and financial institutions. Employees or businessmen, who just started their career or individuals who are earning low income now, but have good confidence in building their bright future, can take risks and consider this step-up home loan. Take into account high interest rates and other negative points before choosing this option.

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Should you opt for Step-Up Home Loans


  • rudramuni

    Dear Sir,

    Please please help me…

    Myself a karnataka state government regularised employee aged 29 years old,working since the last 4 years, with present take home salary being 34000 rupees per month.

    I have decided to buy a 2bhk flat in an apartment worth 42 lacs for which i need to pay 20% of the amount(i can afford to pay) and remaining amount i e 80% about 32 lacs as bank loan.

    Upon enquiry with IDBI bank agent he has suggested me to go for step up loan scheme,using which i can get 28 to 30 lacs using which i can pay the remaining 80% amount of the flat. shall i go for this IDBI stepup loan scheme?Iis it safe to opt for this scheme considering my imminent promotion to higher post within 3 months job security and assured annual increment of 1000 rupees plus DA/HRA hike? please advice me.waiting for your reply.

  • Mrinal Chattopadhyaya

    I want to invest rs 2000 per month on 4 MFs. Preferences of sectors as your choice.

    Risk bearing capicity medium to high


    • Invest in largecap or diversified funds like ICICI Pru focussed blue chip fund,HDFC Top-200, Birla SL Frontline fund, BNPP Equity fund, UTI Opps fund and Quantum long term equity fund. You can pick any of these funds.



    • Bikash, While I may not give you accurate info here is what generally happens (1) and (2) If you have visited last week, interest payable upto Jul-14 end would be computed. You would have got a letter which indicates date at which this amount is applicable 3) I am not sure about this, you may check with bank

  • Mohit

    Step up loans are very expensive. Me with some of my relative had setup a hospital in my native place & had opted for very high loan amount; 3 of our partners were doctors & we got loan under SBI Doctor Plus plans. Initially, peiod of loan was 7 years but we extended the same to 10 years & shifted to this useless setup loan.

    They talked about the repayment of Principal & not about the actual EMI. Suppose, actual EMI was 475 rupees per month for 7 year period; using step up loan, they told to pay just 200 per month for 1st 2 years & then, increase 50 to 100 rupees for subsequent years. We opted for the same. In total, we were paying 39,900 previously for 25,000 rupees loan in case of EMI but now, we have to pay 45,000, if converted to 7 years time period & for 10 years, 47,600 & this difference of 5,000 is too large to bear when amount is higher. I had used the same ratio. For 25000, it's 5,000 higher for the whole period. So, beware of that!

    The case is so bad that I am trying hard to sell my 15% share but who will purchase?? Till 2018, our hospital is not going to give us any true profit.

    • Sorry to hear about this Mohit. Like I indicated, yes it comes with very high interest rates. 

      • Mohit

        If we started earning a higher profit, we will definitely negotiate with the manager of our region for repayment but before that we should be able to make 475 rupees per month as profit & for that turnover should cross 1500-1600 rupees which is like a dream, which will never come true. Hahahaha! It was my worst decision to invest money in that hospital; got inspired by my useless relatives. As quoted by you, never invest in SMEs & our hospital also belongs to the same category. It is also a registered private Limited Company whose profit will never increase in spite of growth in revenues. Hahahaha! Keeping money in Savings Bank was better than this silly idea.

        Coming to main point, I feel that it's better for new employees to wait for a few more years rather than to put their nose in real estate. It's infeasible to pay such a higher interest rates. I had seen these younger generation people are trying to win this world as soon as possible (ASAP in their language). They are not matured as their older generation were. They use to build a house of their own after their retirement & car 10-15 years before retirement; looks funny but at least, they were not buried under the pressure of EMIs.

        Today's concept; personal mobile @ 15 years; laptop @ 18 years; bike @ 23 years; car @ 28-30 years & 2BHK flat @ 35 years. These younger generation don't look whether they can afford that item or not but just merely analyzes whether they can afford EMIs or not, whatever the interest rates are. One of my friend's son wants to purchase a costly bike (90K or 1 lakh) from his own money, soon after he joined an IT company. He was not able to arrange 35K; so he opted for a personal loan for around 16% interest rate for 1 year period. Even with a decent salary, he is still under the debt. Why??

        ASAP he got the job, he purchased a mobile phone worth 35K (Over-charging Samsung); laptop worth 60K (with so called free windows 8); 32 inch LED TV; branded clothes, watches, shoes, etc. & at the same time, paying a rent of 11K for Executive Class Paying Guest; laptop was purchased under 0% finance charges where one has to pay 2K as processing charges.

        Even, these mid-range car owners are also buried under the debt. Most of them are paying half of their salary in EMI as they had purchased a decent diesel car & one-tenth in (not required) maintainence & insurance; best part comes when they keep their car in home & travel via local buses. Hahahaha! I recommend you to write an article on uncovering the myths behind these Pseudo rich middle class mentality, especially about how these Younger generation blindly chose an item without analyzing whether they can afford it or not & again the life buried under EMIs.

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