Step-Up vs Top-Up Home Loan: Know the differences to make a well-informed decision

financialexpress.com:

The home loan market is rapidly evolving in India, presenting a range of products to cater to the diverse requirements of potential homeowners. Step-up home loans and top-up home loans are among the favoured options available. It is, however, imperative to comprehend the differences between the two in order to make a well-informed decision.

Step-up and top-up home loans serve different financial purposes. A step-up home loan is suitable for young professionals who have lower initial incomes but anticipate significant career advancement. Conversely, a top-up home loan is beneficial for individuals who require additional funds for personal or professional expenses, without the hassle of applying for a new loan. It is important to be aware of these distinctions.

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A step-up home loan is designed to help borrowers who expect their income to increase over time. This type of loan offers a lower EMI (equated monthly instalment) in the initial years, which gradually increases over the loan tenure. The idea is to match the repayment capacity with the borrower’s anticipated rise in income.

Example: Imagine a young professional, aged 25 years, who has just started his career with a salary of Rs 50,000 per month. He plans to buy a house worth Rs 50 lakh. A step-up home loan allows him to start with lower EMIs, say Rs 25,000 per month for the first five years. As his career progresses and his salary increases, the EMIs will also rise, reaching Rs 40,000 per month in the later years of the loan tenure.

This is beneficial for young professionals who have lower incomes at the start of their careers but expect significant salary growth over time. It provides the