Step Down Home Loan – Flexible Loan Installment Plan Calculator

Step Down Home Loan Repayment Plan

step-down-home-loanIn the earlier post on this blog, we have discussed about the two types of step up home loan facilities. The Type-1 step up loans allow home loan borrowers to accelerate the repayment of their home loan by increasing their EMI, when they are having increased income levels in later parts of their home loans. This effectively reduces the loan period and thus decreases their overall interest burden. The Type-2 Step-Up home loans are effectively used to increase the loan eligibility amount for the borrowers who cannot afford to pay higher EMI reliability in the initial years.

Step Down home loan facility is just a reverse of the step up home loans. This repayment plant is also known as Flexibility Loan Installment Plan (FLIP). Here the repayment plan is structured in such a way that the EMI decreases as the loan progresses. You are required to pay lump sum amounts at predefined time periods, which essentially reduce your outstanding loan balance. This reduction in loan balance results in lower EMI payments for the subsequent period.

Step Down repayment plans in home loans are most suited for those nearing their retirement. These individuals expect that their disposable incomes are going to reduce considerably after the retirement, and they may not be in a position to pay the normal EMI.

Step Down Repayment Home Loan Calculator

Here we present an online Step-Down Home Loan Calculator, which allows you to calculate the EMI’s and outstanding loan balances in a step down home loan repayment plan. Please understand that this is not a versatile calculator, which could calculate EMI in every situation. It works only with under certain assumptions as given below. However you can download the basic template MS Excel file and customize the same as per your needs and requirements.

Download Step-Down Home Loan Calculator

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The calculator shows a hypothetical case with following loan details.

The Assumption:

  • Loan Amount = Rs. 20,00,000
  • Annualized Interest Rate = 10%
  • Loan Period = 15 years
  • Step Down Part Payments = Rs. 3,00,000 and Rs. 4,00,000 at the end of 5 years and 10 years respectively.

The Results:

  • EMI for 1-5 years: Rs. 21,492
  • EMI for 6-10 years: Rs. 17,528 with outstanding loan balance of Rs. 13,26,332 in the beginning of year 6 after adjusting part payment of Rs. 3,00,000.
  • EMI for 11-15 years: Rs. 9,029, with outstanding loan balance of Rs. 4,24,942 in the beginning of year 11 after adjusting part payment of Rs. 4,00,000.
  • Since the EMI payments are skewed and loaded towards the beginning of the loan duration, Step-down repayment plans result in a considerable savings in the total interest outgo. As can be seen from the calculator, the total interest outgo in the entire loan period of 15 years in this hypothetical example is Rs. 15,82,907. In case of a regular EMI loan, the total interest outgo would have been Rs. 18,68,578. This shows, how this step-down facility has reduced the overall interest payment by Rs. 18,68,578 - Rs. 15,82,907 = Rs. 2,85,672.

The calculator clearly shows how the EMI gets reduced after each part payment at the beginning of the 6th and 11th year respectively.

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Lots of approximations and assumptions have been made while developing the calculators.

Please make your own calculations before making any financial decision.