Who does it cater to?
For the lenders, these loans are high risk and thus they are offered on a very selective basis. There are chances that the expected increment in salary may not happen, or the borrower may simply get laid off. These factors could make the loan a bad debt for the bank and a cause of agony for the borrower. So, these home loans schemes have strict eligibility criteria.
These loans are ideal for young professionals and double income households in initial stages of their careers and who expect a considerable hike in income during the course of their employment.
Risks to the borrower
Before availing this scheme a borrower should try to understand the risks associated with the step up facility. Interest rate risk is quite high in these loans because during the early years, repayment of the principal amount is very low. So, paying the EMI could be a burden in the later years, especially if the interest is to be charged at floating rate in times of rising interest rates.
When availing a step up loan, borrowers should opt for fixed rate option rather than floating rate to have a better control over EMIs. It is advised that an individual should be sensible in assessing the amount of future increment while trying to avail this loan. Over borrowing may invite financial turmoil in the future. So, one should limit the amount borrowed on this type of loan.
Who gives these loans?
In private sector, banks like ICICI Bank and HDFC Bank offer step up home loans to eligible customers. Similarly, Saraswat Bank's ‘Vaastu Siddhi Home Loan' provides the SURF to customers.
Not many public sector banks provide pure step up loans, i.e. they may not increase the loan amount in any case though they allow step up repayment facility on home loans. Union Bank of India and Corporation Bank are two public sector banks providing step up loans to home loan borrowers.