What is margin money in home loans?

Margin money in home loans, is the amount that a borrower pays as down payment. While buying a property, the portion of the total cost that has to be financed from the buyers’ own funds is called margin money and this may vary from 10% to 25%. This may also be paid to the bank or a non-banking finance company (NBFC) from where the prospective home buyer is seeking a home loan.

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Why is margin money important?

Lenders consider this money paid as down payment, as a sign of trust. It is important, given that it lowers the risk for the financing company, as they will know that the borrower may be dependable.

How much should you pay as margin money?

The amount required to be paid as margin money, depends on the property’s market value, home loan tenure, total home loan amount and the opportunity cost. For under-construction properties and those linked with a plan, the margin money will depend on the stage of construction of such a property.

See also: Tips for making the down payment for a house

Margin money receipt

On paying the margin money in a home loan, the lender bank or NBFC will give a receipt called the margin money receipt.

How to arrange for margin money?

Liquidating your savings, taking a loan on savings, asking for soft loans from your company, or top-up loans from banks/NBFCs, are some of the popular choices to arrange margin money. While this helps you arrange finances in the short-term, it may have some consequences, as well. For example, you run the risk of emptying your savings or if you opt for a loan against savings, the interest rates may be very high. A soft loan will impact your take-home pay for the next few months and a top-up loan is a costly affair. Thus, consider all options, before finalising the margin money source.

Also read: How to raise ‘margin money’ to purchase property

Margin money and its usage in trade

When the term margin money (margin trading) is used in the stock market, it refers to the process by which investors buy excess stocks or more than what they can afford. Various stock brokers are involved in intra-day trading in India. It involves buying and selling of securities in a single session. Margin trading then becomes a quick way to make some fast money. To put it crisply, a margin account will cushion you with all the resources to buy more stocks.

FAQs

On home loan, how much margin money will I be expected to pay?

You may be asked to pay between 10% and 25% of the property’s value.

What are some personal savings options that I can liquidate to contribute the margin money on home loan?

You could try liquidating funds in bank accounts, fixed deposits, investments in National Savings Certificates (NSC) or investments in shares and mutual funds. However, this may empty your savings altogether. So, be mindful of the decision you make and weigh the odds.

Why margin money is collected?

In home loans, the margin money helps to mitigate the lender’s risk.

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Sneha Sharon Mammen

Sneha takes her head and heart to work. A passionate writer, she loves to pen observations about real estate, policies, business, infrastructure, lifestyle, luxury, marketplace and people. She is a gold-medalist and majored in English Literature and Communications. Off work, she is interested in theatre.