STEP-UP LOAN Definition

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STEP-UP LOAN is a type of home loan that offers varying equated monthly installments (EMIs) spread over the loans tenure, i.e. the EMI is lower in the initial years, but over time the EMI increases. One of the primary advantages of a step-up loan as compared to a normal home loan is that it increases the loan eligibility of the individual. Since this loan takes into account the future earning potential of the prospective borrower, it factors in the imminent hike in the earnings going forward and adjusts the loan eligibility amount accordingly. Step-up loans are also generally available only to salaried individuals and professionals. In other words, businessmen cannot take advantage of this type of loan. This is because the general feeling among lenders is that salaries have a tendency to rise year on year. This is not always the case with businesses, which may be doing well at a given point in time but are generally conceived to be unpredictable in nature. The determinant on whether step-up loans are better or a normal home loan depends on individual requirements. There are various products designed to meet the varying requirements of individuals. However, the truth with a step-up is that it increases the net cash outflow for the borrower. In this way, the risk to the borrower on being able to satisfy future payments due to cash flow considerations could be potentially high.

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BASE PERIOD is a specified time period under which data is gathered, analyzed and used as a benchmark against which comparative financial or economic data from other periods is measured.

DOWN PAYMENT is a partial payment made at the time of purchase; the balance to be paid later as stipulated by contract; written or oral.

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