Hey All,
I have a decent money in my EPF [Employees' Provident Fund] account and at the same time have a Home Loan amount of Rs.60 Lakhs pending for which I am paying an interest of 8.25% per annum. I was wondering what if I withdraw my EPF funds and pay that money to reduce my Home loan amount. Without doing much of a math here one would think withdrawing funds from our EPF, we can reduce your home loan requirement, leading to lower EMIs and interest payments. But that is not correct until I did some math to exactly find out what is benefial to continue to build our RPF account of pay off out Home Loan which is a better option. Lets explore the same in this blog post today. But before I get any further, please note that if you have completed five years of continuous service, your PF withdrawal for home purchases and rather paying off home loan is tax-free so that pretty good.
Lets understand the situation with an example..
Here is the Situation Recap; I have put in some numbers just to get a clarity
Home Loan: ₹60 lakhs
Interest Rate: 8.25%
EMI: ₹72,000/month
Loan Tenure (assumed): 20 years
EPF Corpus: ₹40 lakhs
EPF Return: 8.5% per annum (compounded, tax-free)
Lets do a net Comparison Over 20 Years
| Metric | Option 1: Keep EPF & Continue Home Loan | Option 2: Withdraw EPF & Prepay ₹40L |
|---|---|---|
| Home Loan Principal Paid | ₹60,00,000 | ₹20,00,000 |
| Total Interest Paid | ₹77,40,000 | ₹25,80,000 |
| Total EMI Paid | ₹1,37,40,000 | ₹45,80,000 |
| EPF Value After 20 Years | ₹2,00,00,000+ | ₹0 |
| Net Wealth After 20 Years | ₹62,60,000 | -₹45,80,000 |
As seen from the above table its very clear that we are better of and I it would be financially smarter to keep our EPF invested and continue to pay the loan how we are paying it. If I continue to pay my loan EMI and keep my EPF as it after 20 Years it would have been compounded to Rs. 2 Crores and if I now subtract the interest component paid for my home loan which is close to Rs.77 lakh; subtract it from the EPF funds I would still be at a good amount of profit. There is going to be net wealth difference of over ₹1.08 crore and hence the option 1 which is** Keep EPF & Continue Home Loan** is better than withdrawing EPF to prepay home loan. I would further add that only consider prepaying if you need peace of mind, lower cash outflow, or face income instability. Else let your EPF [Employees' Provident Fund] grow and reap the benefits at a later stage. I hope this was somewhat useful and now one can easily decide what to do in terms of they having a doubt - "EPF [Employees' Provident Fund] & Home Loan - Should I touch my EPF to Pay off my Home Loan?" Act SMART & Save your money wherever possible. Happy Investing... Cheers
#HomeLoan #LoanRepayment #PrepaymentStrategy #EMISavings #HomeSaverLoan #LoanTenureReduction #FinancialPlanning
Check my earlier post on Home Loan & Prepayments
- Home Loan Trap? Not Anymore! Part 2 - Executed the PLAN - Now awaiting FINAL OUTCOME...
- Home Loan Trap? Not Anymore! How I’m Cutting ₹40L ($47K) in Interest...My Plan Ahead...
Best Regards
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