Buying a new property can seem like a tedious task to a first-time buyer in the real estate market. However, opting for housing finance can make your job a lot easier. Before applying for a loan, you must know the different elements involved in the loan application, sanction, and disbursal process.
And one such factor that plays a significant role in borrowing finance is margin money! If you don’t know what is housing loan margin money, read further to find out.
What is Home Loan Margin Money?
Mortgage finance only covers about 70 to 90% of the property’s total price. And, the borrower pays the balance amount to the financial institution during application. This is called margin money in loan. It is also referred to as the down payment for a home loan and is a crucial part of home finance.
The percentage of margin money in a loan can vary from lender to lender, but it is usually at least 20%, depending on the total amount. It also depends on the property’s market value and the loan tenure. The margin money or down payment lowers the risk factor for the lender and acts as a sign of trust.
Furthermore, a higher amount of margin money lowers your repayment obligation and monthly EMIs. Therefore, having funds saved up for the down payment means half the battle is won. However, if you are unable to do so, there are a few simple methods to arrange it to buy your desired property.
It represents the difference between the total cost of the property and the loan amount sanctioned by the lender.
It also shows the lender that the borrower has the financial discipline and the ability to contribute towards the property.
A higher margin payment reduces the loan amount, thereby lowering the EMIs and interest payout.
Before you set out to contemplate how much margin money required for home loan, let us understand certain aspects of margin money.
Key Aspects of Margin Money
Criteria
Explanation
Definition
Margin money is the part of the property’s cost that the borrower pays from their own funds. The rest is covered by the lender as a home loan.
Purpose
It ensures the borrower has a financial stake in the property, reducing the risk for the lender.
Risk
The borrower’s risk is limited to their margin contribution. If the loan defaults, the property serves as collateral, and the margin money could be lost.
Interest
No interest is charged on margin money since it is not borrowed. Interest applies only to the loan amount disbursed by the lender.
Regulatory Oversight
In India, the Reserve Bank of India (RBI) regulates margin money norms to protect both lenders and borrowers.
How to Calculate Margin Money in Home Loan?
Margin money is a portion of the total property cost that a borrower must pay upfront from their own funds. It is not covered by the home loan and shows the borrower’s commitment to the purchase.
You can calculate the margin money using the formula:
Margin Money = Total Property Cost – Loan Amount Sanctioned
Let’s understand this with an example.
Say,
Total property cost: Rs. 50 lakhs
Loan sanctioned (80% of property cost): Rs. 40 lakhs
Now that you know what is margin money in home loan, here are a few ways you can arrange it to purchase your next property.
Liquidate your savings: One way to arrange funds for margin money is to liquidate some of your current savings. This may include financial instruments such as fixed deposit accounts, mutual funds, etc.
Make a budget and start saving: Start monitoring your monthly expenditure and keep track of all the miscellaneous expenses. You must allocate a monthly budget towards your down payment. It may take months, so you must start saving early.
Take a personal loan: You can also avail of a personal loan to help you pay off the margin money on your home loan. But time your loan application carefully and opt for a loan with flexible repayment terms. Besides, assess your financial condition to ensure you can service two loans simultaneously.
Borrow funds from family: Lastly, you can also seek funds from your friends or family. This is the easiest way to raise your down payment, and you can repay them when you can.
Few Other Important Things to Know About Home Loan Margin Money
Lenders usually mandate a minimum margin money percentage. However, you can contribute more if you wish, which can reduce your loan burden.
If you can’t arrange the required margin money, your home loan application may be rejected by the lender.
It’s best to have your margin money ready before applying for a home loan to ensure smooth approval and timely disbursement.
Conclusion
Are you looking for housing finance options with flexible tenures, competitive interest rates, and quick processing? Your search ends at Tata Capital. We ensure a comfortable borrowing experience with easy eligibility conditions, minimal paperwork requirements, structured EMI plans, and speedy disbursal of loans.
You can even evaluate your EMIs by using our online home loan EMI calculator. So, quit waiting any longer and visit our website to know more!
08 May 2025
5 mins read
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