What Is Margin Money In Home Loan & How To Arrange It?

Everyone dreams of owning the home of their dreams. But with the booming real estate market, buying a house takes meticulous financial planning. Simply relying on the savings in your bank account can take a considerable toll on your daily expenses. With a home loan, your dream of purchasing real estate can get the boost it deserves.

The margin money, or down payment, is an indispensable part of getting a home loan.

Typically, any lending institution provides only 70-90% of the total loan amount. The balance amount, or margin money, is paid upfront by the borrower. What is margin money in a home loan, though? It is a non-quantitative credit control measure adopted by lending institutions to protect the economy from inflation or deflation.

In this article, we will delve into the margin money meaning in the context of home loans, unravelling its significance and implications in the world of real estate financing.

Importance Of Margin Money in Home Loans

When lending a certain amount, lending institutions place their faith in the borrower. In such cases, margin money safeguards against potential losses from the latter's end. It indicates that the borrower is serious about buying property and intends to keep their end of the deal. Providing a certain amount as a down payment also lowers the loan-to-value ratio (LTV) and improves tax benefits for the borrower.

Sources That Can Be Used For Home Loan Margin Money

You can acquire margin money from different sources, as follows:

• Personal savings
• Selling existing assets like bonds, stocks, jewellery, or real estate.
• Gifts or financial aid from family or friends.
• Fixed deposits
• Investments like mutual funds or equity bonds
• Secured loans
• Bonus income
• Subsidies or government grants

Apart from the above-listed sources, you can arrange for margin money with the help of cash, specific equipment, business, insurance policies, intellectual property, etc. Without physical or intellectual assets, an individual can offer a personal guarantee to proceed with the loan process.

Tips To Arrange For Margin Money In Home Loan

Preparing the margin amount in advance can save you time and effort.

Here are some tips to keep in mind:

Tip 1: Plan Your Budget Well In Advance

Observe your expenses for essential and non-essential needs. Set aside a fixed amount every month to build a corpus. This will significantly boost your savings.

Tip 2: Cash Out Your Savings

You may need to encash your savings, like fixed and recurring deposits, mutual funds, etc., to pay the margin money.

Tip 3: Enquire If Your Lender Allows For A Proportionate Release Of Margin Money

Some lenders may allow you to pay the down payment amount in smaller instalments if you are buying an under-construction property.

Tip 4: Secure A Loan Using Your Investments

You can get a loan using any of your existing insurance policies or investment portfolio to arrange for margin money. The amount can be repaid with your savings over time.

Can You Make Higher Down Payment On Home Loans?

Paying a higher down-payment amount comes with its fair share of perks. Not only does it reduce the overall interest, but it also lessens the load on your monthly instalments. Being able to afford a higher margin assures the lender of your financial stability, which is why they may even lend you more with better incentives.

On the other hand, the temptation of a higher down payment can strain your finances if you aren't prepared to bear additional expenses. High margin amounts take more time to save, limiting your ability to invest elsewhere. So, pay the minimum down payment amount and stay consistent with the repayment schedule.

Must Read: What is Down Payment in Home Loan

What Are Margin Money Schemes?

Did you know that many schemes provide margin amounts for home loans? Several government and private organisations assist low and middle-income borrowers in covering their down payments.

Organisations such as the National Housing Bank (NHB) and government schemes like the Pradhan Mantri Awas Yojana (PMAY) and Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) offer affordable arrangements for margin amounts.

Private institutions may vary slightly in their repayment terms and interest rates. However, they are a good alternative for borrowers ineligible for government schemes.

Margin Money - Key Points To Remember

Let's explore some key points to remember when dealing with margin money in the context of home loans.

• Make sure to make photocopies of all your payment receipts and documents required for processing the home loan. Please keep them in a safe place.
• If paying the entire down payment upfront is not possible, consider buying an under-construction property to ease the costs.
• Alternatively, you can postpone your home loan application until you have sufficient funds.
• If the need arises, always choose secured loans over unsecured ones while making down-payment provisions.
• A mortgage insurance policy can help you avail of a home loan with a lower margin amount. The policy shifts some risk to the insurance provider and protects the lender in the event of default payment.

Conclusion

If you plan to buy a home, now is the right time to do so. With margin money, the home loan process becomes more straightforward and affordable. It acts as protection for the lender and reduces the financial burden on the borrower.

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