What is Margin Money in Home Loans?
March 3, 2021|Posted in: home
Going to buy a flat ? Checking out flats in Kerala ? You must be going for a home loan before you buy. As a first-time home loan borrower, you should know what margin money or down payment is?
Even though you are availing a loan to buy a flat, you have to contribute to the home loan amount. But are you confused on how much you will be expected to pay out of your own pocket as the margin money? Not to worry!
You should know by now that Banks and financial institutions never fund 100 % of the cost of your home. Luxury Kerala Flats tells you more about the margin money you should furnish towards the home loan.
What is Margin Money or Down Payment?
It is the amount a loan borrower contributes towards the home loan amount. Once you pay up the margin money, your developer or reseller will give you a Margin Money Receipt (MMR). The down payment ensures you build your interest in the property and reduces the lender’s risk at the same time.
The Reserve Bank of India (RBI) has stipulated norms regarding the owner’s contribution, based on the amount of home loan. To determine the margin money Banks and financial institutions consider:
- The market value of the property
- Tenure of the home loan
- Opportunity cost (the value of something that is lost because you choose an alternative course of action) of investing in other assets
- Total home loan amount.
Just keep in mind that you will have to contribute about 20% of the total cost of the property as the margin money.
Margin money for construction-linked properties
Margin money for construction-linked plan properties based on the stage of construction of the property. You can pay 20% of the margin money upfront and then contribute the rest as the construction progresses.
Things to note:
- Only a fixed percentage (or amount) of margin money is permitted in “cash”, by every lender. This amount should reflect in the bank statement of the home loan buyer.
- If the margin amount is lower, many lenders make home loan insurance compulsory but it is not mandatory.
- You must build up your finances before applying for a home loan. You cannot take a home loan without paying margin money.
- You can always opt for under-construction properties if you are short of funds for margin money.