What is margin money in a Home Loan?

Margin money is part of the total cost of your house that you have to pay even after taking a Home Loan. Generally, banks do not provide a loan for 100% of your house's cost. You are expected to contribute a percentage of the cost, called 'margin money', from your pocket. Before applying for a Home Loan, make sure that you understand the concept of margin money in a loan well.

What is margin money?

When you take out a Home Loan, banks finance up to 80% of the cost of the house. You have to pay at least 20% of the cost upfront from your pocket. This upfront payment is called 'margin money' or 'down payment'.

The amount of margin money depends on the market value of your house, the repayment period of your loan, and the amount of your Home Loan. If you are taking out a Home Loan to construct a house, the margin money depends on the stage of construction as well.

You can apply for a Home Loan from Axis Bank for amounts up to ₹5 crore and flexible repayment tenures up to 30 years. You can pay your margin money based on your affordability and the loan amount.

This is the margin money you need to pay on Axis Bank Home Loans -

The role of margin money

Banks charge you margin money to reduce their own risk. When you pay for a portion of the cost with your funds, you have a personal stake in the property. The lenders view it as a sign of commitment and trust.

How do you raise margin money?

Now that you understand the meaning of margin money, you have to think about saving for your down payment. Raising an amount of 10-20% of your house cost seems very daunting. But with careful planning and financial discipline, you can save up enough.

Here are some essential tips for raising your margin on a loan faster.

1. Start saving early
When it comes to saving money, the sooner you start, the better! You will have more time to collect funds, and you will be able to save without compromising on your regular expenses. For example, if you plan to save ₹5 lakh, saving ₹25,000 per month for 20 months is easier than saving ₹50,000 per month for 10 months.

2. Make a budget
If you want to save money, you need to spend money wisely. You must cut down on your expenses and set aside a chunk of your income every month. Create a monthly budget before the start of the month and try to spend strictly according to it. Track whether you are spending according to the budget using budgeting apps or Excel sheets.

3. Utilise savings
Consider utilising some of your existing savings for your down payment. However, make sure that you don't use all of your savings. You need to set aside an amount for emergencies.

4. Utilise investments
Take a look at all of your investments and see if they can be used for the down payment. You can use your Fixed Deposits, Mutual Fund investments and shares to finance your margin money.

Also Read: Fixed vs floating interest rates: 8 key differences

Other important things to know about margin money

• Banks often specify the minimum percentage of margin money in a Home Loan. If you wish, you can contribute a higher percentage.
• If you are unable to finance your down payment, your loan application can be rejected.
• Make sure that you have your margin money ready before applying for a Home Loan to avoid delays in approval and disbursement.

Conclusion

Margin money is essential for making your Home Loan process smooth and hassle-free. When you have your funds ready before applying for the loan, the loan gets approved faster. This helps you speed up the process of buying and shifting into your new house. The first step is understanding the definition of margin money. Once you do, give yourself ample time to save up the funds without burdening yourself.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.