According to reports, the average cost of a home in India has increased by 6% every year for the past 20 years. With real estate prices skyrocketing, purchasing a house out of pocket has become challenging for many individuals looking to be homeowners.
In most cases, buyers turn towards home loans to help finance the purchase of their new homes, avoiding future financial strain and cash crunches. Most financial organisations will finance a certain percentage of the property’s value. The remaining amount has to be paid by the buyers themselves. This amount is known as the margin amount in home loans. It is also sometimes known as a down payment or own contribution.
In this article, we examine the margin money meaning in loans, what its pros and cons are, examples, and more.
What is Margin Money in Loans?
When buying a new house or poetry, many opt for a home loan to fund their purchase. The lending institution will typically approve a loan covering a certain percentage of the property’s value. This amount could range from 20% to 30%, depending on the property’s value, eligibility, and credit history.
The buyer must cover the remaining price. This amount is sometimes known as the home loan margin money or down payment. You will need to pay this amount upfront, and it is crucial to increase your chances of approval for a home loan.
Some factors affecting the margin money amount iclude the value of your home or property, the loan tenure, the total home loan amount, the stage of construction (if you choose to build a house with a home loan), and more.
How Can You Raise the Housing Loan Margin Amount?
Raising the margin money amount may be challenging with the high real estate prices. However, there are some tips individuals can follow to ensure that they have the funds available to fulfil this amount. These include:
1. Prioritise your savings
One of the easiest and most common ways to raise money for the margin amount is to start saving for your home early on. This doesn’t have to be a large sum at first—you can begin by setting aside a small portion of your monthly earnings when you start working. As your income grows, this amount can gradually increase. Over time, this approach helps you build a substantial corpus while instilling financial discipline. When you’re ready to purchase your first home, these savings can be used for the margin money.
2. Maintain financial discipline
When saving up for a margin amount in loans, one of the most important aspects is to keep a strict watch over your monthly expenses and maintain a strict budget. This can be done by categorising your expenses into necessities, luxuries, and avoidable costs. Determine how much of your avoidable expenses and luxuries can be reduced to help build savings. Cutting back on impulsive purchases during this time is also essential.
3. Use your savings
For individuals with savings, investments, or assets, a simple way to create the money margin amount is to liquidate these. These could involve any mutual fund holdings, foxed deposits in banks, investments in stocks, bonds, and more.
What are the Pros and Cons of the Money Margin?
Money margin amounts have certain advantages and disadvantages. It is essential to consider these when planning the purchase of your house or property. These include:
1. Advantages
– Reduce your loan amount
One of the primary advantages of paying a higher margin is that this reduces the total loan amount you will need to purchase the home. In the long run, this can reduce the loan payments you will need to make.
– Improve chances of approval
The upfront margin amount can increase your chances of approval when applying for a house loan. This is because it reduces the lender’s risk and displays your commitment towards the purchase. It also shows financial stability and discipline. It could improve the interest rates the lender offers.
– Reduce debt
Since the margin amount reduces the loan amount you require, this can reduce the Equated Monthly Installments (EMI) you will be required to pay. This leads to a much lower debt burden.
2. Disadvantages
– High amounts
With the rising cost of the property, margin money amounts are relatively high. This can be challenging finance.
– Financial strain
Margin money can create financial strain for buyers by reducing liquidity and limiting the availability of cash. Therefore, borrowers must be prudent with their finances and consider all their options before deciding on a property.
The Bottom Line
Buying a new home is a significant milestone for many. It is essential to conduct research, determine your budget, and consider all financing options during this process. A home loan calculator can also help determine your approximate monthly payments and other information. These steps can also help improve your home loan eligibility with financial institutions.
If you want to purchase a new home, consider applying for housing finance from Tata Capital. We offer an easy application process, flexible financing options, and competitive interest rates. Visit the Tata Capital website or download the app to learn more!
FAQs
In most cases, margin money is refundable. If the amount has not been used, it could be fully refunded. However, losses may be deducted from the refunded amount in some cases.
The margin balance refers to the amount of money you have to cover yourself after taking a loan. This is also known as margin money.
It is possible to withdraw and refund your margin money. In some cases, this amount could be in full. In other cases, losses could be deducted from the refunded amount.
Margin penalties are charges imposed for failure to pay the margin amount. This could vary depending on the lender, amount, and duration of the shortfall.
18 March 2025
5 mins read
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