Margin money in home loans is the amount the borrower pays as down payment to the bank or non-banking finance company such as Bajaj Finserv, from whom he or she is seeking the home loan. Therefore, the amount the home loan borrower contributes towards the home loan is the Margin Money. Lenders treat the contribution of the margin money in home loan from the borrower as a sign of trust, which also reduces their own risk. They then fund the rest of the amount, that is, the total loan amount less the margin money.
Lenders decide the amount of margin money in home loan based on some important factors. These are market value of the property, tenure of the home loan, total home loan amount, and the opportunity cost.
Margin money in loan for properties linked with a construction plan depends on the stage of construction of the property.
Once the borrower contributes the margin money in home loan, the lender gives a receipt for the amount. This is the margin money receipt.
There are several ways borrowers can arrange for margin money for home loan. Some of these are as follows:
Borrowers can liquidate their savings when putting together a large sum of money for home loan.
If liquidating savings is not possible for reasons such as pre-maturity charges, borrowers can take loan on their savings to arrange for funds required for margin money in home loans. Lender offers about 50% - 75% of the value of the savings instruments. Moreover, the rate of interest charged on the loan against savings instruments is higher than those on the return on the instruments. Therefore, borrowers may have to the cautious when taking out a loan on their savings.
Borrowers may also take out a loan from their employers for paying margin money in home loan, as many employers offer soft loans to their employees. This type of loan may come at a lower interest rate than from other lenders. However, a soft loan from the employer may mean a drop in the monthly pay packet, and the borrower may need to plan accordingly.
Some Banks/NBFCs also offer top up loan, which the borrower can use for paying margin money in home loan. However, such top-up loans usually come at much higher interest rates, which the borrower has to consider and plan ahead.
Also Read: What is Down Payment in Home Loan?