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.
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
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