Home Loan Solution for Early Birds-“STEP UP LOAN”

World of Finance by M.Vijaya Sai

A famous quote always reminds us –“Start Early, Drive Slowly and Reach Safely”. Same thing holds good for early birds (who are in beginning of their carrier) whose dream is to build a home of their choice. But often these early birds fall short of funds that could build their dream homes. For those who fall in this category. Step up loan is your recipe.

A famous quote always reminds us –“Start Early, Drive Slowly and Reach Safely”. Same thing holds good for early birds (who are in beginning of their carrier) whose dream is to build a home of their choice. But often these early birds fall short of funds that could build their dream homes. For those who fall in this category. Step up loan is your recipe.

What is this Step up Loan?

Step up loan is a banking solution that helps you to plan and leverage your future expected salary increment to increase the quantum of home loan you avail at present. In simple words “You need to pay less EMI’s initially and later pay higher EMI’s spread over the loan’s tenure. This can be managed by increment in your salary as you grow up the ladder.

We all know that with the real estate experiencing boom. The home loan industry never looked healthier. The Housing Finance Corporations (HFC’s) are tied up to the problems like, how to serve a borrower with value added services and flexible products?

How it works?

Example: Smart Housing Finance Ltd. agrees to grant Mr. Vijay a housing loan amount of Rs 30,00,000 with a rate of interest  at 10% and the tenure of loan rolling down to 15 years.

In the above example it is clearly evident that EMI works to be Rs 30,265 p.m for first five years. From sixth year onwards till end of tenth year Mr.Vijay will be charged at 10% step up rate amounting to EMI of Rs 33,291 p.m. Going ahead from eleventh year onwards till end of loan tenure i.e. end of fifteenth year, Mr.Vijay will have to pay @20% Step up rate amounting to Rs.36,318 p.m

But, if Mr.Vijay would have gone with normal housing loan instead of Step up loan he would have ended up paying Rs. 32,239 p.m . It’s clear that Vijay will save Rs. 1975 p.m for initial five years if he opts for Step up loan.

Benefits:

1.     Lesser burden in initial period of carriers when it comes to planning for Dream home.

2.    The real estate prices zooming northwards enhance higher value for property over a period of time.

3.  With the increase in demand the market the price could inflate to 3X,5X and 10X more than your investment price.

Disadvantages:

1.    Available to only salary classed people and professionals. Businessmen can’t take benefit of this loan as HFC’s are of feeling that salaries have tendency to rise year on year. But, it’s not true with business class as their incomes are conceived to be unpredictable in nature.

2.    You end up paying higher rate of interest towards end of the tenure. It could be problematic if the interest rates are scaled on floating rate.

Conclusion:

The banks design various products based on your requirement. It’s up to you to consult a financial adviser to make a wise decision before you end up in selecting a right choice. Further whether the step up loans are better or normal housing loan depends based on your requirement. 

(Dear readers I thank for your extended support for your ever inspiring words which boosts my spirits.)