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10 February 2011

Step Up Loans

Home loans involve various administrative procedures and costs and the borrower has to prepare for the down payment before going in for a home loan. Step up loans are a familiar term used in the dealings of home loans and let us understand the meaning of this.
EMIs are the amount paid every month as the repayment of the loan. This amount is deducted from the total amount of the home loan along with interest rate added to this amount. The total loan tenure is decided according to the loan repayment capacity of the borrower and the options available with the lender. This monthly amount is decided and goes on till the end of the loan period. Here the borrower has to keep continuing to pay interest on the loan amount and this comes to a very much higher total amount of the property purchased.
In case the borrower has the facility and available amount to repay the loan early then also there are many options available. One can opt out of the home loan by transferring or closing the loan. Also there is an scheme of step up loans where the borrower has guarantee that their salaries and assets will increase over the years. Hence their loan repayment capacity will also increase. The total amount they can shell out every month will increase so they can increase the EMI during later years of loan repayment and payoff the loan early.  In this scheme the EMIs accelerate every year. This is considered in proportion of the rise in the income of the borrower.
Banks and other private loan lenders have this option and also if the borrower is unable to repay the higher amount they can shift back to their normal EMIs. Switch to the current loan procedures and follow the longer tenure option of loan repayment.

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