Using EPF to Prepay Your Home Loan: Is It a Smart Move?
The money deposited in EPF comes in handy after the retirement of the employee. The longer the employee contributes to the EPF, the more the retirement fund grows. Experts say that withdrawal of EPF money should be avoided. This is because it has a direct impact on the employee’s financial position after retirement. The question is whether EPF money can be used to close the home loan early.
Home loan interest rate is lower than other loans. But, the major difference between second loan and home loan is that it is a long term loan. Generally people take home loans for 15-20 years. Therefore, despite being cheap, millions of rupees go out of the customer’s pocket in the form of interest during this period. Therefore, many people consider it beneficial to close this loan early using EPF money.
Experts say that if the interest rate is compared, there is a huge difference between the interest rate of home loan and the interest rate of EPF. Home loan interest rates have come down to an average of 7.5 per cent. Compared to this, EPF earns 8.25 percent interest per annum. Experts say that it is not wise to withdraw money from high interest rate option and close the loan with low interest rate. Many people think about the option simply because they want freedom from home loans.
Experts say that EPF cannot be compared with any other investment option. The reason for this is that it has a different significance in a person’s life. This gives the individual a larger lump sum fund on retirement. He does not have to pay any tax on it. After retirement, this money comes in handy when the monthly salary in the bank account is stopped.
A home loan is a liability that gets gradually reduced. The salary of the employee increases every year. In such a situation, home loan EMIs may be high in the initial years, but after a few years their share in the total income becomes very low. Many people claim tax deduction on home. For them, closing the home loan before the due date can be a loss deal. Experts say that instead of EPF, any other money can be used to pay off the home before the due date.
