STEP-UP SCHEME FOR YOUNG BORROWERS

Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4 /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} The step-up EMI scheme is agood option to reduce repayment burden in the initial years. Ashish Guptaexplains how this scheme works for young borrowers The step-up EMI scheme is a good option to reduce repaymentburden in the initial years. Ashish Gupta explains how this scheme works foryoung borrowers the repayment of a home loan is through equated monthly instalments (EMIs) . Some banksprovide the step-up EMI facility to borrowers. The step-up EMI facility reducesthe repayment burden in the initial years and helps in increasing the loaneligibility of the applicant. It helps young borrowers, especially those whointend to borrow early but do not have a high income and cannot afford higherEMIs in the initial years. Later, over time, as the income increases, they can affordto pay higher EMIs. In this process, the borrower takes on a higher interestrate risk if the loan is based on a floating rate of interest. A rise in theinterest rate would mean a portion of the total interest would remainunrealised and added to the borrower's principal. Since a large part of the initial installments go towardsinterest payment, the borrower can avail of tax benefits for a longer period.Interest on the loan is a cost. However, the tax benefits reduce the cost ofborrowing. This way, the borrower can deploy his savings into other investments schemes that offer abetter rate of return. In this scheme, the EMI portion is recovered in parts.During the first few years, a lower EMI amount is to be paid by the borrower.During the latter part of the loan tenure, EMIs are increased, so that a higherEMI amount is payable during the later years. This way, the burden of repaymentin the initial years is reduced for the borrower. The lower EMI is madepossible because of the step-up facility where the monthly payouts increaseduring the later part of the loan tenure. The principal repayment under a step up loan may startimmediately, thereby reducing the interest rate risk for the borrower. In othercases, the EMIs for the first few years are just enough to cover the currentinterest rate. The process of step up can be in different phases. In somecases, two phases are offered - one at a lower rate and the other at a higherrate. In other cases, the step-up can be a gradual process. It can be doneyearly or every five years, or at some other time periods. Some banks alsooffer the step-up scheme with a fixed interest rate ,but the rate of interest for such loans is higher than the floating rate.Borrowers need to remember, in a step-up scheme, the interest rate riskexposure is quite high. In the initial years, the interest component is moreand the principal component is lesser. Lower EMIs in the initial years wouldmean lower principal amount is being repaid. This deferral of principalrepayment to the later part of the loan tenure increases the interest cost ofthe loan. This may turn out to be higher in case of a floating rate loan,because in case the interest rate increases, a higher rate would have to bepaid on a higher outstanding principal loan amount. In case of a rise in the interest rate, the difference isrecovered through higher EMIs towards the end of the loan tenure. Borrowers whoare likely to earn more in future can avail this facility to get a higher loanamount and adjust their cash flows over a period of time. Courtesy:- TOI dt:- 13-02-2010 For more informationregarding 4 bhk apartment, apartment in gurgaon, bedroom apartments, buy propertyin india, commercial complex in india, commercial real estate, commercial spacein gurgaon, dealers, flats for sale, indian real estate investment, investmentoptions in real estate, luxurious flats, malls, office space, office space ingurgaon, online real estate, penthouses gurgaon, plots, property consultants,property in gurgaon, property india, property investment, real estate company,real estate developer, real estate gurgaon, real estate in india, real estateinvestment strategies, real estate market, real estate news, real estateportals, realtors, realty, residence, residential real estate, sell property,shop, villas, Residential Apartment Visit        www.zameen-zaidad.com                 www.propertycafeteria.com

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