What is Margin Money in Loans? Everything You Need to Know

What is Margin Money in Home Loans? Everything You Need to Know

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What is Margin Money in Home Loans? Everything You Need to Know

3 min 20 Mar 2025

Highlights:

What is Margin Money?
What Does Margin Money Mean in Home Loans?
The Role of Margin Money in Loans
How to Raise Margin Money?
Key Things to Know About Margin Money

When applying for a Home Loan, you may come across the term ‘margin money’. Margin money plays a significant role in the lending process, influencing both the amount of loan you can secure and your financial planning.

In this article, we will explore what margin money means, its importance in loans, particularly Home Loans, and practical ways to arrange margin money.

What is Margin Money?

Margin money is the portion of the total purchase value that a borrower must contribute from their own funds when availing of a loan. It is also known as the down payment and is not covered in the loan.

What Does Margin Money Mean in Home Loans?

In the context of Home Loans, margin money refers to the amount that the borrower needs to pay upfront while the remaining amount is covered by the lender as a Home Loan. For example, if you are buying a home worth Rs.50 Lakh, and the lender is offering a loan of 80% of the property's value, you must contribute the remaining 20% as margin money, which in this case would be Rs.10 Lakh.

The Role of Margin Money in Loans

Margin money serves several important purposes in the lending process. A higher margin money contribution can improve the chances of loan approval and may also result in better loan terms. The higher the margin money, the lower the LTV, which can positively affect the interest rate offered by the lender.

How to Raise Margin Money?

If you are planning to apply for a Home Loan, here are some practical ways to arrange margin money:

Use Your Savings: You can start saving early and use your savings to arrange the margin money, but make sure to retain enough funds for emergencies. Likewise, avoid dipping into your insurance policy or emergency fund to cover the down payment.
Liquidate Assets: Selling non-essential assets, such as stocks or bonds, can help raise the required funds.
Use Fixed Deposits: You can use your fixed deposits to arrange margin money.

Key Things to Know About Margin Money

Varies by Loan Type: The margin money requirement may differ based on the type of loan you are planning to avail of
Impacts EMI Amount: Higher margin money reduces the loan amount, which in turn can lower the EMI amount
Influences Loan Approval: Lenders assess your ability to pay margin money as a sign of your financial discipline.

Margin money is a key component of the Home Loan process that not only impacts your loan eligibility but also influences your overall financial planning. Understanding what margin money is and how it works can help you arrange for margin money preemptively. Explore different ways to arrange margin money and choose a loan option that aligns with your repayment capacity and financial goals.

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