As property prices reach sky-high levels, buying a house without borrowing a home loan seems improbable, especially for the young professionals. After all, financing ahousing loan can be difficult for the young professionals lacking a disposable income, since the interest outgo is usually higher during the initial years of the home loan tenure.
However, if a young professional wishes to buy a house early on, they can opt for a step-up home loan to make their wish come true.
What is a Step-up home loan?
A step-up home loan is a type of loan that offers different EMIs spread over the home loan tenure. The EMI amount is low during the initial years of the tenure so the burden of debt reduces.
Borrowers can either pay a lower EMI amount or only pay the interest in the first half of the tenure.But, during the second half of home loan tenure, the EMI outflow increases or ‘steps-up’ as the borrower’s income increases.However, only salaried individuals are eligible for a step-up home loan as the lending risk and the home loan rates are usually high for this type of loan.
Moreover, a step-up home loan is a flexible repayment facility, specially designed for the working population and offers several benefits, such as:
Scales up Your Home loan Eligibility
Typically, a step-up home loan increases the home loan eligibility by 5%-30% since the lender factors in the expectedincome growth of the applicant. If the applicant has a stable career or job, with better prospects and assured chances of income hike, then theirhome loan eligibility will be high. To evaluate the applicant’s prospects, lenders check –
- Current income
- Educational background
- Type of job, etc
However, there is no standard procedure for a step-up home loan – different lenders use different eligibility criteria.
You Can Get a Higher Loan Amount
Young professionals can obtain a higher amount by taking a step-up home loan as compared toa conventional home loan plan. This is because the home loan EMIs for a step-up home loan is lower so theapplicant’s borrowing capacity surges and consequently, the housing loan amount.
Moreover, an applicant can avail of a higher home loan amount than what they are eligible for.
Lower EMIs in the Initial Years
For young professionals, the initial years of servicing a housing loan can overburden their pockets, as the interest portion of the EMI amount is higher. However, a step-up home loan facility reduces the EMI paymentsduring the initial years of the home loan tenure to provide a flexible repayment option.
Borrowers can choose to pay the interest during the initial half of the home loan tenure and pay the principal amount during the second half of the home loan tenure when their income increases.
Final Thoughts
If a young professional wishes to buy a home in the initial years of their career but expect a regular income hike, then a step-up home loan facility is suitable for them. They can secure easy home loans by applying for a step-up facility and obtain a home loan online.
Nonetheless, it is wise to use a home loan EMI calculator to calculate the EMI amount and compare different home loan interest rates provided by different lenders, before settling for one.
Interesting related article: “What is Interest Rate?“